Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Statements in this Annual Report of PremierWest Bancorp (Bancorp or the Company) regarding future events or
performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe harbors of the PSLRA. The Companys actual results could
be quite different from those expressed or implied by the forward-looking statements. Words such as could, may, should, plan, believes, anticipates, estimates,
predicts, expects, projects, potential, likely, or continue, or words of similar import, often help identify forward-looking statements, which include any statements
that expressly or implicitly predict future events, results, or performance. Factors that could cause events, results or performance to differ from those expressed or implied by our forward-looking statements include, among others, risks discussed
in Item 1A, Risk Factors of this report, risks discussed elsewhere in the text of this report and in our filings with the SEC, as well as the following specific factors:



General economic conditions, whether national or regional, and conditions in real estate markets, that may affect the demand for our loan and other
products, lead to declines in credit quality and increase in loan losses, negatively affect the value and salability of the real estate that we own or that is the collateral for many of our loans, and hinder our ability to increase lending
activities;



Changing bank regulatory conditions, policies, or programs, whether arising as new legislation or regulatory initiatives or changes in our regulatory
classifications, that could lead to restrictions on activities of banks generally or the Bank in particular, increased costs, including higher deposit insurance premiums, price controls on debit card interchange, regulation or prohibition of certain
income producing activities, or changes in the secondary market for bank loan and other products;



Competitive factors, including competition with community, regional and national financial institutions, that may lead to pricing pressures that reduce
yields the Bank earns on loans or increase rates the Bank pays on deposits, the loss of our most valued customers, defection of key employees or groups of employees, or other losses;



Increasing or decreasing interest rate environments, including the slope and level of the yield curve, that could lead to decreases in net interest
margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Companys investment securities; and



Changes or failures in technology or third party vendor relationships in important revenue production or service areas or increases in required
investments in technology that could reduce our revenues, increase our costs, or lead to disruptions in our business.

Furthermore, forward-looking statements are subject to risks and uncertainties related to the Companys ability to, among other things: dispose of
properties or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key personnel; generate loan and deposit balances at projected spreads; sustain fee generation including gains on
sales of loans; maintain asset quality and control risk; limit the amount of net loan charge-offs; manage its interest rate sensitivity position in periods of changing market interest rates; adapt to changing customer deposit, investment and
borrowing behaviors; control expense growth; and monitor and manage the Companys financial reporting, operating and disclosure control environments. Readers are cautioned not to place undue reliance on our forward-looking statements, which
reflect managements analysis only as of the date of the statements. The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should
carefully review all disclosures we file from time to time with the SEC.

PremierWest Bancorp, an Oregon corporation (the Company), is a bank holding company headquartered in Medford, Oregon. The Company operates primarily through its principal subsidiary,
PremierWest Bank (PremierWest Bank or Bank and collectively with the Company, PremierWest), which offers a variety of financial services.

PremierWest Bank conducts a general commercial banking business, gathering deposits from the general public and applying those funds to the origination of loans for real estate, commercial and consumer
purposes and investments. The Bank was created from the merger of Bank of Southern Oregon and Douglas National Bank on May 8, 2000, and the simultaneous formation of a bank holding company for the resulting bank, PremierWest Bank. In April
2001, the Company acquired Timberline Bancshares, Inc., and its wholly-owned subsidiary, Timberline Community Bank (Timberline), with eight branch offices located in Siskiyou County in northern California. On January 23, 2004, the
Company acquired Mid Valley Bank, with five branch offices located in the northern California counties of Shasta, Tehama and Butte. On January 26, 2008, the Company acquired Stockmans Financial Group and its wholly owned banking subsidiary,
Stockmans Bank, with five branch offices located in the greater Sacramento, California area. This acquisition was accounted for as a purchase and is reflected in the consolidated financial statements of PremierWest from the date of acquisition
forward. On July 17, 2009, the Company acquired two Wachovia Bank branches in Northern California. This acquisition was accounted for under the acquisition method of accounting and is reflected in the consolidated financial statements of
PremierWest from the date of acquisition forward.

PremierWest Bank adheres to a community banking strategy by offering a full
range of financial products and services through its network of branches encompassing a two state region between northern California and southern Oregon including the Rogue Valley and Roseburg, Oregon; the markets situated around Sacramento,
California; and the Bend/Redmond area of Deschutes County located in central Oregon.

businesses. A substantial portion of the Banks commercial loans are designated as real estate loans for regulatory reporting purposes because they are secured by mortgages and trust deeds
on real property, even if the loans are made for the purpose of financing commercial activities, such as inventory and equipment purchases and leasing, and even if they are secured by other assets such as equipment or accounts receivable.

One of the primary risks associated with commercial loans is the risk that the commercial borrower might not generate
sufficient cash flows to repay the loan. PremierWest Banks underwriting guidelines require secondary sources of repayment, such as real estate collateral, and generally require personal guarantees from the borrowers principals.

Real estate lendingReal estate is commonly a material component of collateral for PremierWest Banks loans.
Although the expected source of repayment for these loans is generally business or personal income, real estate collateral provides an additional measure of security. Risks associated with loans secured by real estate include fluctuating property
values, changing local economic conditions, changes in tax policies and a concentration of real estate loans within a limited geographic area.

Commercial real estate loans primarily include owner-occupied commercial and agricultural properties and other income-producing properties. The primary risks of commercial real estate loans are the
potential loss of income for the borrower and the ability of the market to sustain occupancy and rent levels. PremierWest Banks underwriting standards limit the maximum loan-to-value ratio on real estate held as collateral and require a
minimum debt service coverage ratio for each of its commercial real estate loans.

PremierWest Bank originates several different types of construction loans, including residential construction loans to borrowers who will
occupy the premises upon completion of construction, residential construction loans to builders, commercial construction loans, and real estate acquisition and development loans. Because of the complex nature of construction lending, these loans
have a higher degree of risk than other forms of real estate lending. Generally, the Bank mitigates its risk on construction loans by lending to customers who have been pre-qualified with performance conditions for long-term financing and who are
using contractors acceptable to PremierWest Bank.

Consumer lendingPremierWest Bank and Premier Finance Company
make secured and unsecured loans to individual borrowers for a variety of purposes including personal loans, revolving credit lines and home equity loans, as well as consumer loans secured by autos, boats and recreational vehicles. Besides targeting
non-bank customers in PremierWest Banks immediate markets, Premier Finance Company also makes loans to Bank customers where the loans may carry a higher risk than permitted under the Banks lending criteria.

Deposit products and other servicesPremierWest Bank offers a variety of traditional deposit products to attract both
commercial and consumer deposits using checking and savings accounts, money market accounts and certificates of deposit. The Bank also offers internet banking, online bill pay, treasury management services, safe deposit facilities, travelers
checks, money orders and automated teller machines at most of its facilities.

PremierWest Banks investment subsidiary,
PremierWest Investment Services, Inc., provides investment brokerage services to its customers through a third-party broker-dealer arrangement as well as through independent insurance companies allowing for the sale of investment and insurance
products such as stocks, bonds, mutual funds, annuities and other insurance products.

PremierWest Bank conducts a regional community banking business in southern and central Oregon and northern California. On
December 31, 2011, the Company had a network of 44 full service bank branches. The Bank has evolved over the past ten years through a combination of acquisitions and de novo branch openings and its geographic footprint can be subdivided into
several key market areas that are generally identifiable by a specific community, county or combination thereof.

The Company
serves Jackson County, Oregon, from its main office facility in Medford with six branch offices in Medford and a branch office in each of the surrounding communities of Central Point, Eagle Point, Ashland and Shady Cove. Medford is the seventh
largest city in Oregon and is the center for commerce, medicine and transportation in southwestern Oregon. PremierWest Bank serves neighboring Josephine County with two full service branches in Grants Pass, Oregon. The principal industries in
Jackson and Josephine Counties include forest products, manufacturing and agriculture. Other manufacturing segments include electrical equipment and supplies, computing equipment, printing and publishing, fabricated metal products and machinery, and
stone and concrete products. In the non-manufacturing sector, significant industries include recreational services, wholesale and retail trades, as well as medical care, particularly in connection with the areas retirement community.

Another primary market area is in Douglas County with three branches in Roseburg, Oregon, and four branches located in the
communities of Winston, Glide, Sutherlin and Drain. The economy in Douglas County has historically depended on the forest products industry, as compared to other market areas along the Interstate 5 corridor, including those in Medford and Grants
Pass and those in northern California, which are somewhat more economically diversified.

Also in Oregon and located inland
from the Interstate 5 corridor, PremierWest Bank operates four branches. Two are located in Klamath Falls in Klamath County. Klamath Countys principal industries include lumber and wood products, agriculture, transportation, recreation and
government. Two other branch offices are located in Deschutes County, with a branch in both Bend and Redmond. This areas principle businesses include recreation, tourism, education and manufacturing.

As of December 31, 2011, the Bank has established offices within seven counties in California. In Siskiyou County there are eight
branch locations in the communities of Dorris, Dunsmuir, Greenview, McCloud, Mt. Shasta, Tulelake, Weed and Yreka. In Shasta County there are three branch locations with two located in Redding and one located in Anderson. In Tehama County there are
two branches with one in Corning and one in Red Bluff. In Yolo County there are two branch offices in the communities of Woodland and Davis. There is one office in Chico in Butte County and Nevada County has a branch in Grass Valley. The economy of
northern California from Siskiyou County south to Butte County is primarily driven by government services, retail trade and services, education, healthcare, agriculture, recreation and tourism.

The Company has four branch locations in Sacramento County. These branches are located in the greater Sacramento area in the communities
of Elk Grove, Folsom, Galt, and Rocklin. These branches have established PremierWest Banks southern-most reach in California. In addition to wholesale and retail trade, the key industries include agriculture and food processing, manufacturing,
transportation and distribution, education, healthcare and government services.

Oregon and California have experienced
economic challenges in the past three years, including high unemployment rates and deteriorating fiscal condition of state and local governments. Many of our branches are located in smaller markets that have experienced higher than average
unemployment. The recession, housing market downturn and declining real estate values in our markets, have negatively impacted our loan portfolio and the business conditions in the markets we serve.

The following table presents the Banks market share percentage for total deposits as
of June 30, 2011, in each county where we have a branch. All information in the table was obtained from deposit data published by the FDIC as of June 30, 2011.

Deposit Market Share ($000s)

Totals by County

2011

2010

2009

State

County

Market

PRWT

% Share

Market

PRWT

% Share

Market

PRWT

% Share

OR

Deschutes

2,354,513

14,223

0.60

%

2,635,087

15,534

0.59

%

2,716,450

23,132

0.85

%

OR

Douglas

1,526,714

137,054

8.98

%

1,507,749

146,814

9.74

%

1,413,851

161,027

11.39

%

OR

Jackson

2,741,782

310,691

11.33

%

2,796,890

365,158

13.06

%

2,874,655

503,981

17.53

%

OR

Josephine

1,247,267

32,559

2.61

%

1,291,985

34,243

2.65

%

1,277,205

36,009

2.82

%

OR

Klamath

774,561

13,999

1.81

%

779,395

13,664

1.75

%

831,244

26,404

3.18

%

Sub-total

8,644,837

508,526

5.88

%

9,011,106

575,413

6.39

%

9,113,405

750,553

8.24

%

CA

Butte

2,906,233

10,302

0.35

%

2,887,149

10,658

0.37

%

2,908,129

7,574

0.26

%

CA

Nevada

1,600,712

119,356

7.46

%

1,614,667

138,544

8.58

%

1,689,110

174,958

10.36

%

CA

Placer

7,248,794

12,099

0.17

%

7,149,159

13,330

0.19

%

6,802,407

19,581

0.29

%

CA

Shasta

2,402,162

40,884

1.70

%

2,449,362

44,326

1.81

%

2,364,239

41,839

1.77

%

CA

Siskiyou

608,075

113,263

18.63

%

611,907

122,534

20.02

%

623,940

124,692

19.98

%

CA

Tehama

599,032

94,093

15.71

%

588,312

97,054

16.50

%

591,475

96,691

16.35

%

CA

Yolo

2,320,830

139,694

6.02

%

2,271,132

160,290

7.06

%

2,272,196

190,515

8.38

%

CA

Sacramento

20,334,135

139,773

0.69

%

19,745,515

151,109

0.77

%

19,648,670

197,156

1.00

%

Sub-total

38,019,973

669,464

1.76

%

37,317,203

737,845

1.98

%

36,900,166

853,006

2.31

%

Total

46,664,810

1,177,990

2.52

%

46,328,309

1,313,258

2.83

%

46,013,571

1,603,559

3.48

%

On January 13, 2012, the Company announced it will consolidate 11 of its 44 branches into existing
nearby branches by the end of April 2012. Five of the branches to be consolidated are located in Oregon, and the other six branches are located in California. The decision to consolidate these branches and the projected reduction in expenses
followed an extensive branch network analysis with a focus on reducing expense, improving efficiency, and positively impacting the overall value of the Company. These branches represent less than 10% of the total bank-wide deposits.

Effective April 30, 2010, four existing branches (one each in Douglas, Butte, Placer and Sacramento counties) were closed and
consolidated with existing PremierWest branches in close proximity.

While PremierWest Bank does business in many different
communities, the geographic areas we serve make the Bank more reliant on local economies in contrast to super-regional and national banks. Nevertheless, Management considers the diversity of our customers, communities, and economic sectors a source
of strength and competitive advantage in pursuing our community banking strategy.

INDUSTRYOVERVIEW

The commercial banking industry continues to face increased competition from non-bank
competitors, and is undergoing significant consolidation and change. In addition to traditional competitors such as banks and credit unions, noninsured financial service companies such as mutual funds, brokerage firms, insurance companies, mortgage
companies, stored-value-card providers and leasing companies offer alternative investment opportunities for customers funds and lending sources for their needs. Banks have been granted extended powers to better compete with these financial
service providers through the limited right to sell insurance, securities products and other services; however, the percentage of financial transactions handled by

commercial banks continues to decline as the market penetration of other financial service providers has grown. The impact on the commercial banking industry of the economic downturn beginning in
2008 and continuing through the present has been meaningful, with bank failures resulting in consolidation and increased legislation and regulation.

PremierWest Banks business model is to compete on the basis of customer service, not solely on price, and to compete for deposits by offering a variety of accounts at rates generally competitive
with other financial institutions in the area.

PremierWest Banks competition for loans comes principally from
commercial banks, savings banks, mortgage companies, finance companies, insurance companies, credit unions and other traditional lenders. We compete for loans on the quality of our services, our array of commercial and mortgage loan products and on
the basis of interest rates and loan fees. Lending activity can also be affected by local and national economic conditions, current interest rate levels and loan demand. As described above, PremierWest Bank competes with larger commercial banks by
emphasizing a community bank orientation and personal service to both commercial and individual customers.

EMPLOYEES

As of December 31, 2011, PremierWest Bank had 452 full-time equivalent employees compared to 477 at December 31, 2010. None of our employees are represented by a collective bargaining group.
Management considers its relations with employees to be good.

WEBSITEACCESSTOPUBLICFILINGS

PremierWest makes available all periodic and current
reports in the Investor Relations section of PremierWest Banks website, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).
PremierWest Banks website address is www.PremierWestBank.com. The contents of our website are not incorporated into this report or into our other filings with the SEC.

GOVERNMENTPOLICIES

The operations of PremierWest and its subsidiaries are affected by state and federal legislative changes and by policies of various regulatory authorities, including those of the states of Oregon and
California, the Federal Reserve Bank and the Federal Deposit Insurance Corporation. These policies include, for example, statutory maximum legal lending limits and rates, domestic monetary policies of the Board of Governors of the Federal Reserve
System, United States fiscal policy, and capital adequacy and liquidity constraints imposed by national and state regulatory agencies.

SUPERVISIONANDREGULATION

Based on the results of an examination completed during the third quarter of 2009, the Bank entered into a formal regulatory agreement (the Agreement) with the FDIC and the Oregon Department
of Consumer and Business Services acting through its Division of Finance and Corporate Securities (DCBS), the Banks principal regulators, primarily as a result of recent significant operating losses and increasing levels of
non-performing assets. The Agreement imposed certain operating requirements on the Bank, many of which have already been implemented by the Bank as discussed in Note 2 of the audited financial statements. The Company entered into a similar agreement
with the Federal Reserve Bank of San Francisco and DCBS.

General  Over the past four years, the banking industry has seen an
unprecedented number of sweeping changes in federal regulation. The most significant of these changes resulted from the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010, the American Recovery
and Reinvestment Act of 2009 (ARRA), and the Emergency Economic Stabilization Act of 2008 (EESA). EESA and ARRA were enacted to strengthen our financial markets and promote the flow of credit to businesses and consumers.
Dodd-Frank has brought and will continue to bring additional, significant changes to the regulatory landscape affecting banks and bank holding companies.

PremierWest is extensively regulated under federal and state law. These laws and regulations are generally intended to protect consumers, depositors and the FDICs Deposit Insurance Fund
(DIF), not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the Company. The operations of the Company may be affected by legislative changes and by the policies of various regulatory authorities. The Company cannot accurately predict
the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, or new federal or state legislation, may have in the future.

Federal and State Bank RegulationPremierWest Bank, as a state chartered bank with deposits insured by the Federal Deposit Insurance Corporation (FDIC), is subject to the
supervision and regulation of the State of Oregon DCBS and the FDIC. These agencies regularly examine all facets of the Banks operations and our financial condition, and may prohibit the Company from engaging in what they believe constitutes
unsafe or unsound banking practices. We are required to seek approval from the FDIC and DCBS to open new branches and engage in mergers and acquisitions, among other things.

The Community Reinvestment Act (CRA) requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC evaluate the record of financial institutions in
meeting the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and
applications to open a new branch or facility. The Companys current CRA rating is Satisfactory.

Banks are
subject to restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons. Extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral as, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not affiliated with the Company and
(ii) must not involve more than the normal risk of repayment or exhibit other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist order or other regulatory
sanctions.

Under the Federal Deposit Insurance Corporation Improvement Act (FDICIA), each federal banking agency
has prescribed, by regulation, capital safety and soundness standards for institutions under its authority. These standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions.

FDICIA included provisions to reform the federal deposit insurance system, including the implementation of risk-based deposit insurance premiums. FDICIA also permits the FDIC to make special assessments
on insured depository institutions in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S. Treasury and other sources or for any other purpose the FDIC deems necessary. Pursuant
to FDICIA, the FDIC implemented a transitional risk-based insurance premium

system on January 1, 1993. Under this system, banks are assessed insurance premiums according to how much risk they are deemed to present to the Deposit Insurance Fund (DIF).
Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or involving a higher degree of supervisory concern. While PremierWest Bank has historically qualified
for the lowest premium level, losses incurred over the past four years have reduced the Companys capital levels and increased supervisory concerns resulting in increased FDIC and state assessments on PremierWest Bank, from $1.1 million in 2008
to $3.4 million in 2011.

From 2008 to 2011, the banking industry, as well as other sectors of the United States economy,
realized a number of changes in federal regulation due to the disruption in credit market operations. The most significant of these changes that affected the Company are discussed below.

Temporary Liquidity Guarantee Program (TLGP)On October 13, 2008, the FDIC announced the TLGP to strengthen
confidence and encourage liquidity in the banking system. The TLGP consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in
non-interest-bearing transaction and regular checking accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). On December 5, 2008, the Company elected to participate in both the Debt Guarantee Program and Transaction
Account Guarantee Program. However, the Company declined the option of issuing certain non-guaranteed senior unsecured debt before issuing the maximum amount of guaranteed debt. The Transaction Account Guarantee Program expired on December 31,
2010. Dodd-Frank provides for unlimited deposit insurance for noninterest bearing transaction accounts (excluding NOW, but including IOLTAs) beginning December 31, 2010 for a period of two years.

Troubled Asset Relief Program (TARP)On October 14, 2008, the U.S. Department of the Treasury announced the
TARP Capital Purchase Program. Under the TARP Capital Purchase Program, the U.S. Department of the Treasury purchased senior preferred stock in qualified U.S. financial institutions. The program was intended to encourage participating financial
institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Companies participating in the program must comply with limits on stock repurchases and dividends, and requirements
related to executive compensation and corporate governance. Additionally, participants must agree to accept future program requirements as may be promulgated by Congress and regulatory authorities. In 2009, the Company sold $41.4 million of its
preferred stock to the U.S. Treasury under the TARP Capital Purchase Program.

Dodd-Frank. On July 21, 2010,
President Obama signed Dodd-Frank into law. Dodd-Frank changed the bank regulatory structure and affected the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. Dodd-Frank requires
various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting and implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years. Significant changes include:



The establishment of the Financial Stability Oversight Counsel, which is responsible for identifying and monitoring systemic risks posed by financial
firms, activities, and practices.



The establishment of a Consumer Financial Protection Bureau, within the Federal Reserve, to serve as a dedicated consumer-protection regulatory body
with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including
the authority to prohibit unfair, deceptive or abusive acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or
less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators.

Amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator
compensation, minimum repayment standards, and prepayment considerations.



Elimination of federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts.
Depending on competitive responses, this significant change to existing law could have an adverse impact on the Companys interest expense.



Broadened base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets
less tangible equity capital of a financial institution.



Federal Reserve determination of reasonable debit card fees.



Permanent increase to the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive
to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012.



Requirement of publicly traded companies to provide stockholders a non-binding vote on executive compensation and so-called golden
parachute payments, and by authorizing the Securities and Exchange Commission to promulgate additional rules that would affect corporate governance and enhance disclosure requirements. The legislation also directs the Federal Reserve Board to
promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Many provisions in Dodd-Frank are aimed at financial institutions that are significantly larger than the Company or the Bank. Nonetheless, there are provisions that apply to us and we must begin to
comply with immediately. In addition, federal agencies will promulgate rules and regulations to implement and enforce provisions in Dodd-Frank. We will have to apply resources to ensure that we are in compliance with all applicable provisions,
which may adversely impact our earnings. The precise nature, extent and timing of many of these reforms and the impact on us is still uncertain.

Deposit InsurancePremierWest opted to participate in the Transaction Account Guarantee Program, which provides unlimited deposit insurance for non-interest bearing transaction accounts and
for regular savings accounts, resulting in an additional quarterly deposit insurance premium assessment paid to the FDIC. As part of this program, PremierWest paid quarterly deposit insurance premium assessments to the FDIC.

The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and
savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our client deposits through the Deposit Insurance Fund (DIF) up to prescribed limits for each depositor. Pursuant to the
Emergency Economic Stabilization Act of 2008 (the EESA), the maximum deposit insurance amount was increased from $100,000 to $250,000 per depositor. The EESA, as amended by the Helping Families Save Their Homes Act of 2009, provides that
the basic deposit insurance limit will return to $100,000 after December 31, 2013; however, Dodd-Frank made permanent the $250,000 per depositor insurance limit for qualifying accounts. The amount of FDIC assessments paid by each deposit
insurance fund member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. Pursuant to the Federal Deposit Insurance Reform Act of 2005, the FDIC is authorized to set the
reserve ratio for the deposit insurance fund annually at between 1.15% and 1.50% of estimated insured deposits. Dodd-Frank eliminated the previous requirement to set the reserve ratio within a range of 1.15% to 1.50%, directed the FDIC to set the
reserve ratio at a minimum of 1.35% and eliminated the maximum limitation on the reserve ratio. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis.

On November 17, 2009, the FDIC imposed a prepayment requirement on most insured depository organizations, requiring that the
organizations prepay estimated quarterly risk-based assessments for the fourth

quarter of 2009 and for each calendar quarter for calendar years 2010, 2011 and 2012. The FDIC has stated that the prepayment requirement was imposed in response to a negative balance in the
deposit insurance fund. The actual assessments due from the Bank on the last day of each calendar quarter will be applied against the prepaid amount until the prepayment amount is exhausted. If the prepayment amount is not exhausted before
June 30, 2013 any remaining balance will be returned to the Bank. The prepayment amount does not bear interest.

DividendsUnder the Oregon Bank Act, banks are subject to restrictions on the payment of cash dividends to their parent
holding company. A bank may not pay cash dividends if that payment would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. In addition, the amount of the dividend may not be greater
than its net unreserved retained earnings, after first deducting (i) to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six months;
(ii) all other assets charged off as required by the state or federal examiner; and (iii) all accrued expenses, interest and taxes of the Company. Under the Oregon Business Corporation Act, the Company cannot pay a dividend if, after
making such dividend payment, it would be unable to pay its debts as they become due in the usual course of business, or if its total liabilities, plus the amount that would be needed, in the event PremierWest Bancorp were to be dissolved at the
time of the dividend payment, to satisfy preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is to be made exceed total assets.

The Companys ability to pay dividends depends primarily on dividends we receive from the Bank. Under federal regulations, the
dollar amount of dividends the Bank may pay depends upon its capital position and recent net income. Generally, if the Bank satisfies its regulatory capital requirements, it may make dividend payments up to the limits prescribed under state law and
FDIC regulations. The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserves view that a bank holding company should pay cash dividends only to the extent
that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding companys capital needs, asset quality and overall financial condition. The Federal
Reserve also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, a bank holding company may be prohibited from paying any dividends if the holding
companys bank subsidiary is not adequately capitalized. Due to the losses we experienced, we suspended dividend payments on our common stock in the second quarter of 2009 and on our preferred stock in the fourth quarter of 2009. We cannot pay
dividends unless we receive prior regulatory consent. Until conditions improve and we increase our capital levels we do not expect to pay dividends on our capital stock or receive dividends from the Bank.

In addition, the appropriate regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends if,
in their opinion, such payment constitutes an unsafe or unsound banking practice.

Capital AdequacyThe federal
and state bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks. If capital falls below the minimum levels established by these guidelines, a holding company or a bank may be
denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities.

The FDIC and
Federal Reserve have adopted risk-based capital guidelines for banks and bank holding companies. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and
bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The current guidelines require all bank holding companies and federally regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier 1 capital. Generally, banking regulators expect banks to maintain capital ratios well in excess of the minimum.

Tier 1 capital for banks includes common shareholders equity, qualifying perpetual
preferred stock (up to 25% of total Tier 1 capital, if cumulative; under a Federal Reserve rule, redeemable perpetual preferred stock may not be counted as Tier 1 capital unless the redemption is subject to the prior approval of the Federal Reserve)
and minority interests in equity accounts of consolidated subsidiaries, less intangibles. Tier 2 capital includes: (i) the allowance for loan losses of up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred stock
which exceeds the amount which may be included in Tier 1 capital; (iii) hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible securities and (vi) subordinated debt and intermediate term preferred stock of up
to 50% of Tier 1 capital. Total capital is the sum of Tier 1 and Tier 2 capital less reciprocal holdings of other banking organizations, capital instruments and investments in unconsolidated subsidiaries.

Banks assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given credit
conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets.

Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property, which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of or obligations guaranteed by the U.S. Treasury or U.S. Government agencies, which have 0% risk-weight. In converting off-balance sheet
items, direct credit substitutes, including general guarantees and standby letters of credit backing financial obligations, are given 100% conversion factor. The transaction-related contingencies such as bid bonds, other standby letters of credit
and undrawn commitments, including commercial credit lines with an initial maturity of more than one year, have a 50% conversion factor. Short-term, self-liquidating trade contingencies are converted at 20%, and short-term commitments have a 0%
factor.

The FDIC also has implemented a leverage ratio, which is Tier 1 capital as a percentage of total assets less
intangibles, to be used as a supplement to risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank may leverage its equity capital base.

FDICIA created a statutory framework of supervisory actions indexed to the capital level of the individual institution. Under regulations
adopted by the FDIC, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together with certain subjective factors. Institutions
deemed to be undercapitalized are subject to certain mandatory supervisory corrective actions.

Prompt
Corrective Action. The prompt corrective action provisions of the FDIA create a statutory framework that applies a system of both discretionary and mandatory supervisory actions indexed to the capital level of FDIC-insured
depository institutions. These provisions impose progressively more restrictive constraints on operations, management, and capital distributions of the institution as its regulatory capital decreases, or in some cases, based on supervisory
information other than the institutions capital level. This framework and the authority it confers on the federal banking agencies supplements other existing authority vested in such agencies to initiate supervisory actions to address capital
deficiencies. Moreover, other provisions of law and regulation employ regulatory capital level designations the same as or similar to those established by the prompt corrective action provisions both in imposing certain restrictions and limitations
and in conferring certain economic and other benefits upon institutions. These include restrictions on brokered deposits, limits on exposure to interbank liabilities, determination of risk-based FDIC deposit insurance premium assessments, and action
upon regulatory applications.

FDIC-insured depository institutions are grouped into one of five prompt corrective action
capital categorieswell-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalizedusing the Tier 1 risk-based, total risk-based, and Tier 1 leverage capital ratios as
the relevant capital measures. An institution is considered well-capitalized if it has a total risk-based capital ratio of

at least 10.00%, a Tier 1 risk-based capital ratio of at least 6.00% and a Tier 1 leverage capital ratio of at least 5.00% and is not subject to any written agreement, order or capital
directive to meet and maintain a specific capital level for any capital measure. An adequately capitalized institution must have a total risk-based capital ratio of at least 8.00%, a Tier 1 risk-based capital ratio of at least 4.00% and a
Tier 1 leverage capital ratio of at least 4.00% (3.00% if it has achieved the highest composite rating in its most recent examination and is not well-capitalized). An institutions prompt corrective action capital category, however, may
not constitute an accurate representation of the overall financial condition or prospects of the institution or its parent bank holding company, and should be considered in conjunction with other available information regarding the financial
condition and results of operations of the institution and its parent bank holding company.

Effects of Government Monetary
PolicyThe earnings and growth of the Company are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and combating recession, by its open market operations in U.S. Government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and
establishment of reserve requirements against certain deposits. These activities influence growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes
in monetary policies and their impact on the Company cannot be predicted with certainty.

Conservatorship and Receivership
of InstitutionsIf an insured depository institution becomes insolvent and the FDIC is appointed its conservator or receiver, the FDIC may, under federal law, disaffirm or repudiate any contract to which such institution is a party, if the
FDIC determines that performance of the contract would be burdensome, and that disaffirmance or repudiation of the contract would promote the orderly administration of the institutions affairs. Such disaffirmance or repudiation would result in
a claim by its holder against the receivership or conservatorship. The amount paid upon such claim would depend upon, among other factors, the amount of receivership assets available for the payment of such claim and its priority relative to the
priority of others. In addition, the FDIC as conservator or receiver may enforce most contracts entered into by the institution notwithstanding any provision providing for termination, default, acceleration, or exercise of rights upon or solely by
reason of insolvency of the institution, appointment of a conservator or receiver for the institution, or exercise of rights or powers by a conservator or receiver for the institution. The FDIC as conservator or receiver also may transfer any asset
or liability of the institution without obtaining any approval or consent of the institutions shareholders or creditors. The FDIC provides that, in the event of the liquidation or other resolution of an insured depository
institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured
claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company,
with respect to any extensions of credit they have made to such insured depository institution.

Bank Holding Company
StructureAs a bank holding company, the Company is registered with and subject to regulation by the Federal Reserve Board (FRB) under the Bank Holding Company Act of 1956, as amended, or the BHCA. Under FRB policy, a bank holding company
is expected to serve as a source of financial and managerial strength to its subsidiary bank and, under appropriate circumstances, to commit resources to support such subsidiary bank. This support may be required at a time when the Company may not
have the resources to, or would choose not to, provide it. Certain loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits in, and certain other indebtedness of, the subsidiary bank. In addition, federal
law provides that in the event of its bankruptcy, any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of
payment.

Under the BHCA, we are subject to periodic examination by the FRB. We are also required to file with the FRB
periodic reports of our operations and such additional information regarding the Company and its

subsidiaries as the FRB may require. Pursuant to the BHCA, we are required to obtain the prior approval of the FRB before we acquire all or substantially all of the assets of any bank or
ownership or control of voting shares of any bank if, after giving effect to such acquisition, we would own or control, directly or indirectly, more than 5 percent of such bank. Under the BHCA, we may not engage in any business other than
managing or controlling banks or furnishing services to our subsidiaries that the FRB deems to be so closely related to banking as to be a proper incident thereto. We are also prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5 percent of the voting shares of any company unless the company is engaged in banking activities or the FRB determines that the activity is so closely related to banking to be a proper incident to banking.
The FRBs approval must be obtained before the shares of any such company can be acquired and, in certain cases, before any approved company can open new offices.

The FRB has cease and desist powers over parent bank holding companies and non-banking subsidiaries where the action of a parent bank holding company or its non-financial institutions represent an unsafe
or unsound practice or violation of law. The FRB has the authority to regulate debt obligations, other than commercial paper, issued by bank holding companies by imposing interest ceilings and reserve requirements on such debt obligations.

Changing Regulatory Structure of the Banking IndustryThe laws and regulations affecting banks and bank holding
companies frequently undergo significant changes. Pending bills, or bills that may be introduced in the future, may be expected to contain proposals for altering the structure, regulation, and competitive relationships of the nations financial
institutions. If enacted into law, these bills could have the effect of increasing or decreasing the cost of doing business, limiting or expanding permissible activities (including insurance and securities activities), or affecting the competitive
balance among banks, savings associations and other financial institutions. Some of these bills could reduce the extent of federal deposit insurance, broaden the powers or the geographical range of operations of bank holding companies, alter the
extent to which banks will be permitted to engage in securities activities, and realign the structure and jurisdiction of various financial institution regulatory agencies. Whether, or in what form, any such legislation may be adopted or the extent
to which the business of the Company might be affected thereby cannot be predicted with certainty.

In December 1999, Congress
enacted the Gramm-Leach-Bliley Act (the GLB Act) and repealed the nearly 70-year prohibition on banks and bank holding companies engaging in the businesses of securities and insurance underwriting imposed by the Glass-Steagall Act.

Under the GLB Act, a bank holding company may, if it meets certain criteria, elect to be a financial holding
company, which is permitted to offer, through a nonbank subsidiary, products and services that are financial in nature and to make investments in companies providing such services. A financial holding company may also engage in
investment banking, and an insurance company subsidiary of a financial holding company may also invest in portfolio companies, without regard to whether the businesses of such companies are financial in nature.

The GLB Act also permits eligible banks to engage in a broader range of activities through a financial subsidiary, although a
financial subsidiary of a bank is more limited than a financial holding company in the range of services it may provide. Financial subsidiaries of banks are not permitted to engage in insurance underwriting, real estate investment or development,
merchant banking or insurance portfolio investing. Banks with financial subsidiaries must (i) separately state the assets, liabilities and capital of the financial subsidiary in financial statements; (ii) comply with operational safeguards
to separate the subsidiarys activities from the bank; and (iii) comply with statutory restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act.

Activities that are financial in nature include activities normally associated with banking, such as lending, exchanging,
transferring and safeguarding money or securities and investing for customers. Financial activities also include the sale of insurance as agent (and as principal for a financial holding company, but not for a

financial subsidiary of a bank), investment advisory services, underwriting, dealing or making a market in securities, and any other activities previously determined by the Federal Reserve to be
permissible non-banking activities.

Financial holding companies and financial subsidiaries of banks may also engage in any
activities that are incidental to, or determined by order of the Federal Reserve to be complementary to, activities that are financial in nature.

To be eligible to elect status as a financial holding company, a bank holding company must be adequately capitalized, under the Federal Reserve capital adequacy guidelines, and be well managed, as
indicated in the institutions most recent regulatory examination. In addition, each bank subsidiary must also be well-capitalized and well managed, and must have received a rating of satisfactory in its most recent CRA examination.
Failure to maintain eligibility would result in suspension of the institutions ability to commence new activities or acquire additional businesses until the deficiencies are corrected. The Federal Reserve could require a non-compliant
financial holding company that has failed to correct noted deficiencies to divest one or more subsidiary banks, or to cease all activities other than those permitted to ordinary bank holding companies under the regulatory scheme in place prior to
enactment of the GLB Act.

In addition to expanding the scope of financial services permitted to be offered by banks and bank
holding companies, the GLB Act addressed the jurisdictional conflicts between the regulatory authorities that supervise various types of financial businesses. Historically, supervision was an entity-based approach, with the Federal Reserve
regulating member banks and bank holding companies and their subsidiaries. As holding companies are now permitted to have insurance and broker-dealer subsidiaries, the supervisory scheme is oriented toward functional regulation. Thus, a financial
holding company is subject to regulation and examination by the Federal Reserve, but a broker-dealer subsidiary of a financial holding company is subject to regulation by the Securities and Exchange Commission, while an insurance company subsidiary
of a financial holding company would be subject to regulation and supervision by the applicable state insurance commission.

The GLB Act also includes provisions to protect consumer privacy by prohibiting financial services providers, whether or not affiliated
with a bank, from disclosing non-public, personal, financial information to unaffiliated parties without the consent of the customer, and by requiring annual disclosure of the providers privacy policy. Each functional regulator is charged with
promulgating rules to implement these provisions.

The Company is also subject to the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA Patriot Act). Among other things, the USA Patriot Act requires financial institutions, such as the Company to adopt and implement specific
policies and procedures designed to prevent and defeat money laundering. Management believes the Company is in compliance with the USA Patriot Act.

The Sarbanes-Oxley Act (Sarbanes-Oxley) of 2002 implemented legislative reforms intended to address corporate and accounting fraud. Sarbanes-Oxley applies to publicly reporting companies
including PremierWest Bancorp. The legislation established the Public Company Accounting Oversight Board whose duties include the registering of public accounting firms and the establishment of standards for auditing, quality control, ethics and
independence relating to the preparation of public company audit reports by registered accounting firms. Sarbanes-Oxley includes numerous provisions, but in particular, Section 404 requires PremierWest Bancorps Management to assess the
adequacy and effectiveness of its internal controls over financial reporting. As of December 31, 2011, Management believes the Company is in full compliance with the requirements and provisions of Sarbanes-Oxley.

Section 613 of the Dodd-Frank Act eliminates interstate branching restrictions that were implemented as part of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994, and removes many restrictions on de novo interstate branching by national and state-chartered banks. The FDIC and the OCC now have

authority to approve applications by insured state nonmember banks and national banks, respectively, to establish de novo branches in states other than the banks home state if the law
of the State in which the branch is located, or is to be located, would permit establishment of the branch, if the bank were a State bank chartered by such State.

Executive Compensation and Corporate Governance. Dodd-Frank includes several corporate governance and executive compensation provisions that apply to public companies generally. The SEC must
issue rules requiring exchanges to prohibit the listing of a companys securities if its board does not have a compensation committee composed entirely of independent directors. Dodd-Frank requires compensation committees to consider factors
that might affect the independence of advisors such as compensation consultants and attorneys. At least once every three years, companies are required to provide shareholders with an advisory vote on executive compensation. At least once every six
years, shareholders must be provided a separate advisory vote on whether the say-on-pay vote should occurevery one, two or three years. Dodd-Frank requires the SEC to adopt rules requiring disclosure in a companys annual proxy statement
of the relationship between executive compensation actually paid and the financial performance of the company, taking into account any change in the value of the shares of stock and dividends of the company and any distributions. Dodd-Frank mandates
exchanges to adopt listing standards requiring that listed companies develop and implement a claw back policy for accounting restatements. This provision is broader than a similar provision contained in Section 304 of the Sarbanes-Oxley Act in
that it covers all current and former executive officers and not only the CEO and CFO; does not require that the restatement results from misconduct and the look-back period is three years instead of one year; and requires companies to adopt and
disclose a specific claw back policy.

The board should have sufficient expertise and resources to carry out its oversight function;



Incentive compensation arrangements should be disclosed to shareholders.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of
banking organizations. The findings of the supervisory initiatives will be included in reports of examination and any deficiencies will be incorporated into the organizations supervisory ratings, which can affect the organizations
ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the
organizations safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

The FDIC has indicated that it may incorporate a compensation-related risk element in determining levels of deposit insurance assessments. The Federal Reserve, OCC and FDIC recently proposed rules to
implement Section 956 of the Dodd-Frank Act, which requires that the agencies prohibit incentive-based payment arrangements that the agencies determine encourage inappropriate risks by providing excessive compensation or that could lead to a
material financial loss.

REGULATORY AGREEMENT

In April 2010, the Company stipulated to the issuance of a Consent Order (the Agreement) with the FDIC and the DFCS, the Banks principal regulators, directing the Bank to take actions
intended to strengthen its overall condition, many of which were already or in the process of being implemented by the Bank. In June 2010, the Company entered into a Written Agreement with the Federal Reserve Bank of San Francisco and the DFCS,
which routinely accompanies or follows a Consent Order from the FDIC and provides for similar restrictions and requirements at the holding company level. For a more detailed discussion, please reference the Companys Forms 8-K filed
April 8, 2010 and June 4, 2010.

The Agreement required, among other things, that the Bank:



Increase and maintain its Tier 1 Capital in such an amount to ensure that the Banks leverage ratio equals or exceeds 10% by October 3, 2010,



Reduce assets classified Substandard in the report of examination to not more than 100% of the Banks Tier 1 capital and allowance for
loan and lease loss reserve (ALLL) by November 2, 2010, and



Reduce assets classified Substandard in the report of examination to not more than 70% of the Banks Tier 1 capital plus ALLL by
April 1, 2011.

As of the date of this report, the Company has met all of the requirements expect the
leverage ratio requirement. Prior to completing the Agreement with the FDIC in April 2010, we completed a common stock offering that raised $33.2 million in gross proceeds, which raised the Banks Tier 1 leverage ratio from 5.70% at
December 31, 2009, to 8.21% at March 31, 2010. Subsequently the Bank has engaged in balance sheet management activities, including loan and deposit reductions which have further increased its capital ratios as noted above. Similarly, the
Company has reduced its assets classified Substandard to 68% of Tier 1 capital plus ALLL as of December 31, 2011, compared to 178.4% as of June 30, 2009, in the report of examination. As previously noted, the Company has
demonstrated progress and is committed to achieving all the requirements of the Agreement.

The
risks described below are not the only risks we face. If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties not presently known to us or that we currently deem immaterial, materialize,
then our business, results of operations and financial condition could be materially adversely affected. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our shares. The risks
discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Risks Related to Our Company

We may be required to raise additional
capital, but that capital may not be available when it is needed, or it may only be available on unfavorable terms.

We are
required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. The proceeds of our 2010 rights offering returned our Bank capital levels to published Well-Capitalized levels,
including exceeding the 10.0% risk-based capital level. We are, however, subject to a Consent Order that requires higher capital levels, including a 10.0% leverage ratio. Our Bank leverage ratio as of December 31, 2011, was 8.72%.

We may need to raise additional capital to maintain or improve our capital position or to comply with regulatory requirements and support
our operations. In addition, future losses could reduce our capital levels. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial
performance. Accordingly, we may not be able to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our financial condition and our ability to support our operations could be materially
impaired. We could be required to take other actions to improve capital ratios including reducing asset levels or shifting asset types to assets with lower risk-weightings, which could reduce our ability to generate revenues and adversely affect our
financial condition.

We are subject to formal regulatory agreements with the FDIC, DCBS and Federal Reserve.

In light of the challenging operating environment over the past three years, along with our elevated level of
non-performing assets, delinquencies and adversely classified assets, we are subject to increased regulatory scrutiny, including a Consent Order with the FDIC and DCBS dated effective April 6, 2010, and a Written Agreement with the Federal
Reserve and DCBS dated effective June 4, 2010. The Consent Order requires us to take steps to strengthen the Bank and to refrain from undertaking certain activities. We have limitations on the rates paid by the Bank to attract retail deposits
in its local markets. We are required to reduce our levels of non-performing assets within specified time frames, which could result in less than ideal pricing on the sale of assets. We are restricted from paying dividends from the Bank to the
Holding Company during the life of the Consent Order, which restricts our ability to issue preferred stock dividends and make junior subordinated debenture interest payments. The added costs of compliance with additional regulatory requirements
could have an adverse effect on our financial condition and earnings. Our ability to grow is constrained by the Consent Order and Written Agreement and we will be unable to expand our operations until we achieve material compliance with the
regulatory agreements. The requirements and restrictions of the Consent Order and the Written Agreement are judicially enforceable and the failure of the Company or the Bank to comply with such requirements and restrictions may subject the Company
and the Bank to additional regulatory restrictions including: the imposition of civil monetary penalties; the issuance of directives to increase capital or enter into a strategic transaction, whether by merger or otherwise, with a third party; the
appointment of a conservator or receiver for the Bank; the liquidation or other closure of the Bank and inability of the Company to continue as a going concern; the termination of insurance of deposits; the issuance of removal and prohibition orders
against institution-affiliated parties; and the enforcement of such actions through injunctions or restraining orders. Generally, these enforcement actions will be lifted only after subsequent examinations substantiate complete correction of the
underlying issues.

Continued weak or worsening regional and national business and economic conditions, and
regulatory responses to such conditions could constrain our growth and profitability and have a material adverse effect on our business, financial condition and results of operations.

Our business and operations are sensitive to general business and economic conditions in the United States, and southern and central
Oregon and northern California, specifically. If the national, regional and local economies are unable to overcome stagnant growth, high unemployment rates and depressed real estate markets resulting from the economic weakness that began in 2007, or
experience worsening economic conditions, our growth and profitability could be constrained. Weak economic conditions are characterized by, among other indicators, fluctuations in debt and equity capital markets, increased delinquencies on mortgage,
commercial and consumer loans, residential and commercial real estate price declines and lower home sales and commercial activity. All of these factors are generally detrimental to our business. We expect only moderate improvement in these
conditions in the near future. In particular, we may face the following risks in connection with these events:



Our ability to assess the creditworthiness of our clients may be impaired if the models and approaches we use to select, manage and underwrite our
clients become less predictive of future performance.



The process we use to estimate losses inherent in our loan portfolio requires difficult, subjective and complex judgments, including forecasts of
economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans, which process may no longer be capable of accurate estimation and may, in turn, adversely affect its reliability.



We may be required to pay significantly higher FDIC insurance premiums in the future if industry losses further deplete the FDIC deposit insurance
fund.



Changes in interest rates as a result of changes in the United States credit rating could affect our current interest income spread.



Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial
institutions and government sponsored entities.



We may face increased competition due to consolidation within the financial services industry.

If current levels of market disruption and volatility continue or worsen, our ability to access capital may be adversely affected and
asset quality may further deteriorate, which would harm our business, financial condition and results of operations.

The
negative impact of the current economic recession has been particularly acute in our primary market areas of southern and central Oregon and in northern California.

Our operations are geographically concentrated in southern and central Oregon and northern California and our business is sensitive to regional business conditions. Our financial condition and results of
operations are highly dependent on the economic conditions of the markets we serve, where adverse economic developments or regional or local disasters (such as earthquakes, fires, floods or droughts), among other things, could affect the volume of
loan originations, increase the level of non-performing assets, increase the rate of foreclosure losses on loans and reduce the value of our loans. Substantially all of our loans are to businesses and individuals in our primary market areas. Our
customers are directly and indirectly dependent upon the economies of these areas and upon the timber and tourism industries, which are significant employers and revenue sources in our markets  economic factors that affect these industries
will have a disproportionately negative impact on our region and our customers. All geographic regions in which we operate have seen precipitous declines in property values. Since 2009, Oregon has had one of the nations highest unemployment
rates and major employers have implemented substantial layoffs or scaled back growth plans. Oregon continues to face fiscal challenges, the long-term effects of which on the states economy cannot be predicted. The State of California continues
to face significant fiscal challenges, the long-term effects of which cannot be predicted. A further deterioration in the economic and business conditions or a prolonged delay in economic recovery in our primary market areas could result in the

following consequences that could materially and adversely affect our business: increased loan delinquencies; increased problem assets and foreclosures; reduced demand for our products and
services; reduction in cash balances of consumers and businesses resulting in declines in deposits; reduced property values that diminish the value of assets and collateral associated with our loans; and a decrease in capital resulting from
charge-offs and losses.

We have taken actions, and may take additional actions, to help us improve our regulatory capital
ratios, including reducing expense, assets and liabilities.

On January 12, 2012, we announced plans to close and
consolidate eleven branches, representing approximately 10% of the Banks deposits, by April 2012. Branch consolidation is projected to result in expense savings of approximately $1.9 million annually beginning in the second quarter of 2012.
First quarter 2012 pre-tax income is expected to be reduced by approximately $790 thousand as a result of consolidation expenses. The branch closures are part of our plans to reduce assets and liabilities and to reduce expenses, improve efficiency
and positively impact the value of the Company. We expect to further evaluate our options for reducing expenses and assets and liabilities which could include branch or asset sales. The disposition of our assets and liabilities could hurt our
long-term profitability. While branch closures, if completed, will likely reduce our assets and liabilities and increase our Bank capital ratios, we expect that our net income in the future could be reduced as a result of the loss of income
generated by these branches. When we close or consolidate a branch, customers at those branches may transition their business to our competitors. We also face the risks of higher than expected consolidation expenses and the inability to realize
projected savings levels.

As of December 31, 2011, approximately 79% of our gross loan portfolio was secured by real
estate, the majority of which is commercial real estate and continued market deterioration could lead to losses.

Declining
real estate values have caused increasing levels of charge-offs and provisions for loan losses since 2008. The market value of real estate can fluctuate significantly in a short period of time as a result of local market conditions. Adverse changes
affecting real estate values and the liquidity of real estate in our markets could increase the credit risk associated with our loan portfolio, and could result in losses that would adversely affect our profitability. Adverse changes in the economy
affecting real estate values and liquidity in our markets could significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses. Collateral
may have to be sold for less than the outstanding balance of the loan, which could result in losses on the loan. Declines in real estate market values, increases in commercial and consumer delinquency levels or losses may precipitate increased
charge-offs and a further increase in our loan loss provisions, which could have a material adverse effect on our business, financial condition and results of operations.

Our earnings depend to a large extent upon the ability of our borrowers to repay their loans, and our inability to manage credit risk would negatively affect our business.

We will suffer losses if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the
terms of their loans. We have adopted underwriting and credit monitoring procedures and a credit policy, including the establishment and review of the allowance for loan losses that our management believes are appropriate to minimize this risk by
assessing the likelihood of non-performance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, involve subjective judgments and may not prevent unexpected losses that could materially affect our
results of operations. Moreover, bank regulators frequently monitor loan loss allowances. If regulators were to determine that the allowance was inadequate, they may require us to increase the allowance, which also would adversely impact our
financial condition.

We have continuing losses and continuing volatility in our results of operations.

We reported a net loss applicable to shareholders of $17.6 million for the year ended December 31, 2011. Losses
resulted primarily from the high level of nonperforming assets and the related reduction in interest income and increased provision for loan losses. We can provide no assurance that we will not have continuing losses in our operations.

We are required to reduce levels of nonperforming assets under our Consent Order.

We are required to improve our financial condition by reducing nonperforming assets. We may seek to sell assets, but market conditions for
the sale of assets may not be favorable and we may not be able to lower nonperforming asset levels sufficiently to meet the requirements of the Consent Order or to maintain existing capital levels. If other banks are also required to improve capital
levels and choose to sell assets, or if the FDIC sells assets in its position as receiver for a failed bank in our market area, asset pricing could be unfavorable. The sale of nonperforming assets could reduce capital levels and delay compliance
with the Consent Order.

We have high levels of nonperforming assets which negatively affect our results of operations.

Our nonperforming assets adversely affect our net income in various ways. Until economic and market conditions improve, we
expect to continue to incur additional losses relating to nonperforming loans. We do not record interest income on non-accrual loans, thereby adversely affecting our income, and increasing loan administration costs. When we receive collateral
through foreclosures and similar proceedings, we are required to mark the related loan to the then fair market value of the collateral, which may result in a loss. An increase in the level of nonperforming assets also increases our risk profile and
may impact the capital levels our regulators believe are appropriate in light of such risks. Decreases in the value of problem assets, the underlying collateral, or in the borrowers performance or financial condition, could adversely affect
our business, results of operations and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to performance of their other
responsibilities. We could experience further increases in nonperforming loans in the future.

The Consent Order limits the
types of funding sources on which we may rely and may have a negative impact on our liquidity.

We cannot accept, renew or
roll over any brokered deposits. In addition, certain interest-rate limits apply to our brokered and solicited deposits. The reduction in the level of brokered deposits, even according to their regular maturity dates, may have a negative impact on
our liquidity. Our financial flexibility could be severely constrained if we are unable to obtain brokered deposits or renew wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have
sufficient liquidity to continue to fund new loan originations, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. Furthermore, we are now required to provide a higher level of collateral
for any funds that we borrow from the Federal Reserve, and we may be required to provide additional collateral to our other funding sources as well. Any additional collateral requirements or limitations on our ability to access additional funding
sources are expected to have a negative impact on our liquidity.

We are subject to restrictions on our ability to declare
or pay dividends on and repurchase shares of our common stock and to repay our junior subordinated debentures.

We are a
separate, distinct legal entity from the Bank and receive substantially all of our revenue from dividends from the Bank. Our inability to receive dividends from the Bank adversely affects our financial condition. The Banks ability to pay
dividends is primarily dependent on net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earnings assets, the
general level of interest rates, the dynamics of

changes in interest rates and the levels of nonperforming loans. Our ability to pay dividends, and the Banks ability to pay dividends to us, are also limited by regulatory restrictions and
the need to maintain sufficient capital. In the second quarter of 2009, we suspended payment of dividends on our common stock in order to conserve capital. We are subject to formal regulatory restrictions that will continue to prohibit us from
declaring or paying any dividend without prior approval of banking regulators. Although we can seek to obtain waiver of such prohibition, we would not expect to be granted such waiver or to be released from this obligation until our financial
performance improves significantly. Therefore, we may not be able to resume payments of dividends in the future. In addition the Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the
adequately capitalized level in accordance with regulatory capital requirements. It is also possible that, depending on the financial condition of the Bank and other factors, regulatory authorities could assert that payment of dividends
or other payments by the Bank, including payments to the Company, is an unsafe and unsound practice. Under Oregon law, the amount of a dividend from the Bank may not be greater than net unreserved retained earnings, after first deducting to the
extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six months unless the debt is fully secured and in the process of collection; all other assets
charged-off as required by the Oregon Division of Finance and Corporate Securities (DFCS) or state or federal examiner; and all accrued expenses, interest and taxes.

Under the terms of our agreements with the U.S. Treasury in connection with the sale of our Series B Preferred Stock, we are unable to
declare dividend payments on common, junior preferred or pari passu preferred shares if we are in arrears on the dividends on the Series B Preferred Stock. We suspended further dividend payments on the Series B Preferred Stock in the fourth quarter
of 2009 in order to conserve capital. If dividends on the Series B Preferred Stock are not paid in full for six dividend periods, whether or not consecutive, the holders of the Series B Preferred Stock will have the right to elect two directors.
Such right to elect directors will end when full dividends have been paid for four consecutive dividend periods. In December 2011, the U.S. Treasury elected Mary Carryer to our board of directors. We also announced in the fourth quarter of 2009 that
we would defer, as permitted under the terms of indentures, interest payments on junior subordinated debentures issued in connection with trust preferred securities. We are permitted to defer such interest payments for up to 20 consecutive quarters,
but during a deferral period we are prohibited from making dividend payments on our capital stock.

Further, if we become
current on our Series B Preferred Stock dividends and junior subordinated debenture payments, we cannot increase dividends on our common stock above $0.57 per share per quarter without the U.S. Treasurys approval or redemption or transfer of
the Series B Preferred Stock.

We are subject to executive compensation restrictions because of our participation in the
U.S. Treasurys TARP Capital Purchase Program.

We are subject to TARP rules and standards governing executive
compensation, which generally apply to our Chief Executive Officer, Chief Financial Officer and the three next most highly compensated senior executive officers and, with amendments to the rules in 2009, apply to a number of other employees. The
standards include (i) a requirement to recover any bonus payment to senior executive officers or certain other employees if payment was based on materially inaccurate financial statements or performance metric criteria; (ii) a prohibition
on making any golden parachute payments to senior executive officers and certain other employees; (iii) a prohibition on paying or accruing any bonus payment to certain employees, with narrow exceptions for grants of long-term restricted stock;
(iv) a prohibition on maintaining any plan for senior executive officers that encourages such officers to take unnecessary and excessive risks that threaten the Companys value; (v) a prohibition on maintaining any employee
compensation plan that encourages the manipulation of reported earnings to enhance the compensation of any employee; and (vi) a prohibition on providing tax gross-ups to senior executive officers and certain other employees. These restrictions
and standards could limit our ability to recruit and retain executives.

Our business is heavily regulated and Dodd-Frank and additional new regulations may
negatively affect our operations.

The wide range of federal and state laws and regulations affecting the Holding Company
and the Bank are designed primarily to protect the deposit insurance funds and consumers, and not to benefit shareholders. These laws and regulations can sometimes impose significant limitations on our operations as well as result in higher
operating costs. In addition, these regulations are constantly evolving and may change significantly over time. Significant new regulation or changes in existing regulations or repeal of existing laws may affect our results materially. Further,
federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions and interest rates that impact the Company. We could experience credit losses if new federal or state legislation, or
regulatory changes, are implemented to protect customers by reducing the amount that the Banks borrowers are otherwise contractually required to pay under existing loan contracts or by limiting the Banks ability to foreclose on property
or other collateral or makes foreclosure less economically feasible.

Compliance with the recently enacted financial reform
legislation may increase our costs of operations and adversely impact our earnings. Dodd-Frank contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions. Dodd-Frank also establishes a new
financial industry regulator, the Consumer Financial Protection Bureau (CFPB). Our banking regulators have introduced and continue to introduce new regulations and supervisory guidance and practices in response to the heightened
Congressional and regulatory focus on the financial services industry generally. Additional legislative or regulatory action that may impact our business may result from the multiple studies mandated by Dodd-Frank. We are unable to predict the
nature, extent or impact of any additional changes to statutes or regulations, including the interpretation or implementation thereof, which may occur in the future. The effect of Dodd-Frank and other regulatory initiatives on our business and
operations could be significant, depending upon final implementing regulations, the actions of our competitors and the behavior of consumers. Dodd-Frank, other legislative and regulatory changes, and enhanced scrutiny by our regulators could have a
significant impact on us by, for example, requiring us to limit or change our business practices, limiting our ability to pursue business opportunities, requiring us to invest valuable management time and resources in compliance efforts, imposing
additional costs on us, limiting fees we can charge for services, requiring us to meet more stringent capital, liquidity and leverage ratio requirements, impacting the value of our assets, or otherwise adversely affecting our businesses. Dodd-Frank,
its implementing regulations, and any other significant financial regulatory reform initiatives could have a material adverse effect on our business, results of operations, cash flows and financial condition. Significant changes include:



The establishment of the Financial Stability Oversight Counsel, which will be responsible for identifying and monitoring systemic risks posed by
financial firms, activities, and practices. The establishment of the CFPB to serve as a dedicated consumer-protection regulatory body with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has
broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit unfair, deceptive or abusive acts and practices. The Consumer Financial
Protection Bureau has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or less in assets will continue to be examined for compliance with the consumer laws by their primary bank
regulators. Because the CFPB has been recently established and its Director has been only recently appointed, there is significant uncertainty as to how the CFPB will exercise and implement its regulatory, supervisory, examination and enforcement
authority. Changes in regulatory expectations, interpretations or practices could increase the risk of regulatory enforcement actions, fines and penalties. Actions by the CFPB could result in requirements to alter our products and services that
would make our products less attractive to consumers. Changes to regulations or regulatory guidance adopted in the past by bank regulators could increase our compliance costs and litigation exposure.



Amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator
compensation, minimum repayment standards, and prepayment considerations.

Elimination of federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts.
Depending on competitive responses, this significant change to existing law could have an adverse impact on the Companys interest expense.



Broadened base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets
less tangible equity capital of a financial institution.



Federal Reserve determination of reasonable debit card fees.



Requirement of publicly traded companies to provide stockholders a non-binding vote on executive compensation and so-called golden
parachute payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a companys proxy materials. The legislation also directs the Federal
Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Many provisions in Dodd-Frank are aimed at financial institutions that are significantly larger than the Company or the Bank.
Nonetheless, there are provisions that apply to us and we have to apply resources to ensure compliance, which may adversely impact our earnings. The precise nature, extent and timing of many of these reforms and the impact on us is still uncertain.

Our earnings depend upon the spread between the interest rate we receive on loans and securities and the interest rates we
pay on deposits and borrowings. We are impacted by changing interest rates. Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and
borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning
assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Exposure to interest rate risk is managed by adjusting the re-pricing frequency
of PremierWest Banks rate-sensitive assets and rate-sensitive liabilities over any given period. Significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

Liquidity measures the ability to meet loan demand and deposit withdrawals and to pay liabilities as they come due. A sharp reduction in
deposits or rapid increase in loans outstanding could force us to borrow heavily in the wholesale deposit market, purchase federal funds from correspondent banks, borrow at the Federal Home Loan Bank of Seattle or Federal Reserve discount window,
raise deposit interest rates or reduce lending activity. Wholesale deposits, federal funds and sources for borrowings may not be available to us due to future regulatory constraints, market conditions or unfavorable terms.

We rely on the Federal Home loan Bank (FHLB) of Seattle as a source of liquidity.

The Company has the ability to borrow from FHLB of Seattle to provide a source of wholesale funding for immediate liquidity and borrowing
needs. Changes or disruptions to the FHLB of Seattle or the FHLB system in general, may materially impair the Companys ability to meet its growth plans or to meet short and long term liquidity demands. In October 2010, the FHLB of Seattle
entered into the Consent Arrangement with the Federal Housing Finance Agency that requires the FHLB of Seattle to meet various standards including a minimum retained earnings requirement. As of December 31, 2011, the FHLB of Seattle continued
to meet all of its

regulatory capital requirements, but remains classified as undercapitalized by the Federal Housing Finance Agency. The Federal Housing Finance Agency may take additional actions or
require the FHLB of Seattle to meet additional requirements or conditions. The FHLB of Seattle cannot pay a dividend on their common stock and it cannot repurchase or redeem common stock. While the FHLB of Seattle has announced it does not
anticipate that additional capital is immediately necessary, and believes that its capital level is adequate to support realized losses in the future, the FHLB of Seattle could require its members, including the Company, to contribute additional
capital in order to return the FHLB of Seattle to compliance with capital guidelines.

The financial services industry is
highly competitive.

Competition may adversely affect our performance. The financial services industry is highly
competitive due to changes in regulation that permit more non-bank companies to offer financial services, technological advances that expand the ability of our competitors to reach our customers and offer products through the internet, and the
accelerating pace of consolidation among financial services providers including due to bank failures. Credit unions, as a result of exemptions from federal corporate income tax and costly regulatory requirements facing banks, are able to offer
certain products to our current and targeted customers at lower rates and fees. We face competition both in attracting deposits and in originating loans and providing transactional services.

We rely on technology to deliver products and services and interact with our customers.

We face operational risks as we depend on internal and outsourced technology to support all aspects of our business operations. We store
and process sensitive consumer and business data, and a cybersecurity breach could result in data theft or system disruption. A cybersecurity breach of one of our vendors systems could also result in data theft or disruption of our business.
Interruption or failure of these systems creates a risk of loss of customer confidence if technology fails to work as expected, risk of regulatory scrutiny and possible fines if security breaches occur, and significant expense to remedy the event.
Risk management programs are expensive to maintain and will not protect the company from all risks associated with maintaining the security of customer information, proprietary data, external and internal intrusions, disaster recovery and failures
in the controls used by vendors.

The value of securities in our investment securities portfolio may be negatively affected
by disruptions in securities markets.

Market conditions may negatively affect the value of securities. There can
be no assurance that the declines in market value associated with these disruptions will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net
income and capital levels.

Our deposit insurance premium could be substantially higher in the future.

The FDIC insures deposits at the Bank and other financial institutions. The FDIC charges insured financial institutions premiums to
maintain the Deposit Insurance Fund at a certain level. Current economic conditions have caused bank failures and expectations for additional bank failures, in which case the FDIC, through the Deposit Insurance Fund, ensures payments of customer
deposits at failed banks up to insured limits. In addition, deposit insurance limits on customer deposit accounts have generally increased to $250,000 from $100,000. These developments will cause the premiums assessed by the FDIC to increase and may
materially increase our noninterest expense. An increase in the risk category of the Bank will also cause our premiums to increase. Whether through adjustments to base deposit insurance assessment rates, significant special assessments or emergency
assessments under the TLGP, increased deposit insurance premiums could have a material adverse effect on our earnings.

As of
December 31, 2011, the Company conducted business through 54 offices including the operations of PremierWest Bank, PremierWest Banks mortgage division, and also PremierWest Banks two subsidiariesPremier Finance Company and
PremierWest Investment Services, Inc. The 54 offices included 44 full service bank branches and 10 other office locations.

PremierWest Banks 44 full service branch facilities are located in Oregon and California and more specifically broken down as
follows: 23 branches are located in Jackson (10), Josephine (2), Deschutes (2), Douglas (7) and Klamath (2) counties of Oregon and 21 branches located in Siskiyou (8), Shasta (3), Butte (1), Tehama (2), Yolo (2), Nevada (1), and Sacramento
(4) counties of California. Of the 44 branch locations, 35 are owned by PremierWest Bank, 9 are leased, and two locations involve long-term land leases where the Bank owns the building.

The Companys 10 other locations house administrative and subsidiary operations. These facilities include one campus located in
Medford, Oregon with two owned buildings housing the Companys administrative head office, operations and data processing facilities; two owned administrative facilitiesone in Redding, California housing regional administration, our
Premier Finance Company subsidiary, and one in Red Bluff, California housing PremierWest Bank administrative functions; one leased location in Bend, Oregon, that was not renewed at December 2011; three leased locations housing stand-alone Premier
Finance Company offices in Portland, Eugene, and Roseburg, Oregon; and, three buildings and two owned locations in Medford, Oregon occupied by a Premier Finance Company office and the Banks consumer lending group. The Company also leases a
storage warehouse in Medford, Oregon.

In addition, to the above, three Premier Finance Company offices are housed within
PremierWest Bank full service branch offices, as are various employees of PremierWest Investment Services, Inc., and the Banks mortgage division.

On January 13, 2012, the Company announced it will consolidate 11 branches into existing nearby branches by the end of April 2012. Five of the branches to be consolidated are located in Oregon, and
the other six branches are located in California. These 11 branch locations are owned by PremierWest Bank.

The annual rent
expense on leased properties was $1.0 million, $1.2 million, and $1.1 million in 2011, 2010 and 2009, respectively.

ITEM 3.

LEGAL PROCEEDINGS

From
time to time, in the normal course of business, PremierWest is party to various legal actions. Management is unaware of any existing legal actions against the Company or its subsidiaries that would have a materially adverse impact on our business,
financial condition or results of operations.

In September 2011, PremierWest Bank initiated a legal action to collect debts
from Arthur Critchell Galpin, Eagle Point Developments, LLC, ACG Properties, LLC, and Eagle Point Golf Club, LLC, in the Circuit Court of the State of Oregon for Jackson County, Case No. 11-4146-E-9. The Banks action sought
judgments against those parties and judicial foreclosure upon real estate that served as collateral for the loans. In October 2011, the defendants in the action filed counterclaims against the Bank alleging breach of
fiduciary duty and fair dealing regarding the value of underlying collateral in connection with the sale of a Bank loan to an affiliate of one of the defendants and in connection with the negotiation and restructuring of loan transactions with
the defendants. On January 3, 2012, the Company entered into a confidential master settlement agreement, and the lawsuits were dismissed on January 27, 2012.

PremierWest common stock is quoted on the NASDAQ Capital Market (NASDAQ) under the symbol PRWT. From
February 11, 2011 through March 10, 2011, the symbol converted to PRWTD as a result of our reverse stock split. The common stock is registered under the Securities Exchange Act of 1934. The table below sets forth the high and
low sales prices of PremierWest common stock as reported on NASDAQ. This information has been adjusted to reflect previous stock dividends paid in 2009 and the 1-for-10 reverse stock split that was effective February 10, 2011. No stock dividend
was paid in 2011 or 2010. Bid quotations reflect inter-dealer prices, without adjustment for mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions. On March 6, 2012, the Company had 10,034,741 shares of
common stock issued and outstanding, which were held by approximately 800 shareholders of record, a number which does not include approximately 4,800 beneficial owners who hold shares in street name. As of March 6, 2012, the most
recent date prior to the date of this report, the closing price of the common stock was $1.40 per share.

2011

2010

2009

ClosingMarket Price

CashDividendsDeclared

ClosingMarket Price

CashDividendsDeclared

ClosingMarket Price

CashDividendsDeclared

High

Low

High

Low

High

Low

1st Quarter

$

4.30

$

2.19

$



$

16.30

$

4.50

$



$

67.00

$

26.20

$

0.10

2nd Quarter

$

2.43

$

1.29

$



$

13.80

$

3.90

$



$

46.70

$

33.50

$



3rd Quarter

$

1.88

$

0.91

$



$

5.60

$

3.40

$



$

36.70

$

27.10

$



4th Quarter

$

1.10

$

0.80

$



$

5.50

$

3.10

$



$

27.00

$

13.00

$



The timing and amount of any future dividends PremierWest might pay will be determined by its Board of
Directors and will depend on earnings, cash requirements and the financial condition of PremierWest and its subsidiaries, applicable government regulations and other factors deemed relevant by the Board of Directors. Beginning in the second quarter
of 2009, the Company announced cessation of dividends. See Item 1  Dividends. For a discussion of restrictions on dividend payments, please refer to Part I, Item 1A Risk Factors in this Form 10-K.

Cash paid for fractional shares in connection with the 1-for-10 reverse stock split was approximately $1,000 during the year ended
December 31, 2011. There were no other repurchases of common stock by the Company during 2011.

The following table
provides information about the number of outstanding options, the associated weighted average price and the number of options available for issuance as of December 31, 2011:

Equity Compensation Plan Information

Plan category

Number of securities
tobe issued upon exerciseof outstanding options,warrants and rights(a)

The following graph, which is furnished not filed, shows the cumulative total return for our common stock compared to the cumulative total
returns for the SNL NASDAQ Bank index and the NASDAQ Composite index. All values were gathered by SNL Financial LLC from sources deemed to be reliable. The comparison assumes that $100 was invested on December 31, 2006 in PremierWest Bancorp
common stock and in each of the comparative indexes. The cumulative total return on each investment is as of December 31 for each of the subsequent five years and assumes the reinvestment of all cash dividends and the retention of all stock
dividends. PremierWest Bancorps five-year cumulative total return was -99.42% compared to -46.26% and 13.16% for the SNL NASDAQ Bank and NASDAQ Composite indexes, respectively.

The following table sets forth certain information concerning the consolidated financial condition, operating results and key operating
ratios for PremierWest at the dates and for the periods indicated. This information does not purport to be complete, and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements of PremierWest and Notes thereto.

Consolidated Five-Year Financial Data

(Dollars in thousands except per share data)

Years Ended December 31,

2011

2010

2009

2008

2007

Operating Results

Total interest and dividend income

$

59,475

$

69,041

$

77,964

$

88,936

$

82,400

Total interest expense

9,558

13,074

19,968

28,573

27,216

Net interest income

49,917

55,967

57,996

60,363

55,184

Provision for loan losses

14,350

10,050

88,031

36,500

686

Non-interest income

10,838

11,238

11,003

10,234

8,880

Non-interest expense

61,386

61,980

129,722

47,129

38,973

Income (loss) before provision for income taxes

(14,981

)

(4,825

)

(148,754

)

(13,032

)

24,405

Provision (benefit) for income taxes

70

134

(2,282

)

(5,493

)

9,303

Net income (loss)

(15,051

)

(4,959

)

(146,472

)

(7,539

)

15,102

Preferred stock dividends and discount accretion

2,565

2,533

2,171

275

275

Net income (loss) available to common shareholders

$

(17,616

)

$

(7,492

)

$

(148,643

)

$

(7,814

)

$

14,827

Per Share Data (1)

Basic earnings (loss) per commonshare (1)

$

(1.76

)

$

(0.90

)

$

(60.07

)

$

(3.36

)

$

8.30

Diluted earnings (loss) per commonshare (1)

$

(1.76

)

$

(0.90

)

$

(60.07

)

$

(3.36

)

$

7.80

Dividends declared per common share (1)

$



$



$

0.10

$

1.80

$

1.70

Ratio of dividends declared to net income (loss)

0.00

%

0.00

%

-0.16

%

-53.48

%

19.14

%

Financial Ratios

Return on average common equity

-34.33

%

-13.69

%

-93.07

%

-4.41

%

13.05

%

Return on average assets

-1.31

%

-0.51

%

-9.29

%

-0.54

%

1.38

%

Efficiency ratio (2)

101.04

%

92.23

%

188.01

%

66.76

%

60.83

%

Net interest margin (3)

4.05

%

4.08

%

4.10

%

4.68

%

5.72

%

Balance Sheet Data at Year End

Gross loans

$

797,878

$

978,546

$

1,149,027

$

1,247,988

$

1,025,329

Allowance for loan losses

$

22,683

$

35,582

$

45,903

$

17,157

$

11,450

Allowance as percentage of gross loans

2.84

%

3.64

%

3.99

%

1.37

%

1.12

%

Total assets

$

1,266,047

$

1,411,220

$

1,536,314

$

1,475,954

$

1,157,961

Total deposits

$

1,127,749

$

1,266,249

$

1,420,762

$

1,211,269

$

935,315

Total equity

$

84,365

$

97,008

$

71,535

$

176,984

$

127,675

Notes:

(1)

Per share data have been restated for subsequent stock dividends and for 1-for-10 reverse stock split effective February 10, 2011.

(2)

Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income plus non-interest income.

(3)

Tax adjusted at 40.0% for 2011, 2010 and 2009, 34.00% for 2008, and 38.25% for 2007.

The following tables set forth the Companys unaudited consolidated financial data regarding operations for each quarter of 2011 and
2010. This information, in the opinion of Management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been
reclassified to conform to the current presentation. These reclassifications had no net impact on the results of operations.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

CRITICALACCOUNTINGPOLICIESANDESTIMATES

We have identified our accounting policies related to our calculation of the allowance for credit losses, valuation of
other real estate owned (OREO), impaired loans, and estimates relating to income taxes as policies that are most critical to an understanding of our financial condition and operating results. Application of these policies and calculation
of these amounts involve difficult, subjective, and complex judgments, and often involve estimates about matters that are inherently uncertain. These policies are discussed in greater detail below, as well as in Note 1 Summary of Significant
Accounting Policies to the Companys audited consolidated financial statements included under the section Financial Statements and Supplementary Data Item 8 of this report.

Allowance for Credit Losses. The allowance for loan losses is established to absorb known and inherent
losses attributable to loans outstanding. The adequacy of the allowance is monitored on an ongoing basis and is based on Managements evaluation of numerous factors. These factors include the quality of the current loan portfolio, the trend in
the loan portfolios risk ratings, current economic conditions, loan concentrations, loan growth rates, past-due and nonperforming trends, evaluation of specific loss estimates for all significant problem loans, historical charge-off and
recovery experience and other pertinent information. As of December 31, 2011, approximately 79% of PremierWests gross loan portfolio is secured by real estate. Accordingly, a significant decline in real estate values from current levels
in Oregon and California could cause Management to increase the allowance for loan losses and/or experience greater loan charge-offs.

Other Real Estate Owned (OREO). OREO acquired through foreclosure or deeds in lieu of foreclosure, is carried at the lower of cost or fair value, less estimated
costs of disposal. When property is acquired, any excess of the loan balance over the fair value is charged to the allowance for loan losses. Holding costs, subsequent write-downs to fair value, if any, or any disposition gains or losses are
included in non-interest expense.

Stock Option Plan. The Company measures and recognizes as
compensation expense, the grant date fair market value for all share-based awards. The Company estimates the fair market value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes
option-pricing model to value its stock options. The Black-Scholes model requires the use of assumptions regarding the risk-free interest rate, the expected dividend yield, the weighted average expected life of the options, and the historical
volatility of its stock price.

Income Taxes. The Company establishes a deferred tax valuation
allowance to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some of the deferred tax asset will not be realized. At December 31, 2011, the Company continued to conclude it was
more likely than not that the deferred tax asset would not be realized, and the valuation allowance reduced the deferred tax asset to zero. The determination of our ability to fully utilize our deferred tax assets requires significant judgment, the
use of estimates and the interpretation of complex tax laws. As such, we have written them down to the net realizable value. Prospectively, as the Company continues to evaluate available evidence, including the depth of the current economic downturn
and its implications on its operating results, it is possible that the Company may deem some or all of its deferred income tax assets to be realizable.

Core Deposit Intangibles. In July 2009, the Company acquired two Wachovia Bank branches in Northern California. This acquisition included a core deposit intangible asset
representing the value of the long-term deposit relationships acquired and a negative CD premium as a result of the current all-in cost of the CD portfolio being well above the cost of similar funding. The core deposit intangible asset is being
amortized over an estimated weighted average useful life of 7.4 years. The negative CD premium was fully amortized in 2010.

Net loss applicable to common shareholders of $17.6 million, after $14.4 million in loan loss provision and net OREO and foreclosed asset expenses of
$8.6 million. This compares to a net loss applicable to common shareholders of $7.5 million for the year ended 2010, with a $10.1 million loan loss provision and net OREO and foreclosed asset expenses of $6.9 million;



Net interest margin of 4.05%, a decrease of 3 basis points from 4.08% for the year ended 2010;



Average rate paid on total deposits and borrowings of 0.78%, an 18 basis point decline from 0.96% for the year ended 2010;



Net loan charge-offs of $27.2 million, compared to $20.4 million for the year ended 2010;



Loans past due 30  89 days and still accruing of $2.9 million or 0.40% of total loans, down from $4.2 million or 0.49% at December 31, 2010;



Allowance for loan losses of $22.7 million, or 2.84% of gross loans, compared to $35.6 million, or 3.64%, at December 31, 2010.



Non-performing loans of $76.2 million, or 9.56% of gross loans, compared to $129.6 million, or 13.25% of gross loans, at December 31, 2010.



OREO of $22.8 million down from $32.0 million at December 31, 2010.

Management continued to execute strategies that have resulted in further strengthening of the Company, including:



Reducing adversely classified loans by $105.6 million, or 40%, from $265.4 million at December 31, 2010;



Reducing non-performing assets by $62.6 million, or 39%, from $161.6 million at December 31, 2010;



Stability of the Banks total risk-based and leverage capital ratios of 13.03% and 8.72%, respectively, as compared to 12.59% and 8.85% at
December 31, 2010;



Growth in average non-interest bearing demand deposits of $17.0 million during 2011 to $268.7 million, or 22% of total average deposits, up from $251.7
million, or 19% of total average deposits in 2010.

On January 3, 2012, the Company entered into a
confidential master settlement agreement with its largest non-performing loan relationship totaling $28.7 million. This settlement resulted in a charge-off of $6.2 million including a partial write-down of a remaining non-performing loan and a cash
settlement in exchange for deeds in lieu of foreclosure and dismissal of lawsuits. The impact on operations of this settlement was reflected in fourth quarter 2011, whereas the Company obtained possession of real property and other collateral on
January 11, 2012. The lawsuits were dismissed on January 27, 2012.

The table provided below displays selected asset
quality ratios as of December 31, 2011, and those same ratios adjusted for the impact of this settlement, had the collateral and real property been obtained as of December 31, 2011:

On January 13, 2012, the Company announced it will consolidate 11 branches into
existing nearby branches by the end of April 2012. Five of the branches to be consolidated are located in Oregon, and the other six branches are located in California. The decision to consolidate these branches and the projected reduction in
expenses followed an extensive branch network analysis with a focus on reducing expense, improving efficiency, and positively impacting the overall value of the Company. These branches represent less than 10% of the total bank-wide deposits.

ASSET QUALITY

At December 31, 2011, the Company had $159.8 million in adversely classified loans. This compares favorably to $265.4 million at December 31, 2010. Adversely classified loans have declined for
five consecutive quarters and were down 39.8% from December 31, 2010.

Included in adversely classified loans at
December 31, 2011, were non-performing loans of $76.2 million, compared to $129.6 million, at December 31, 2010. Non-performing loans have declined for five consecutive quarters and were down 41.2% from December 31, 2010. Reductions
in non-performing loans occurred primarily in the commercial real estate loan category. Of those loans currently designated as non-performing, approximately $31.5 million, or 41.4% are current as to payment of principal and interest.

The Company monitors delinquencies, defined as loans on accruing status 30-89 days past due, as an indicator of future non-performing
assets. Total delinquencies were $2.9 million, or 0.40% of gross loans, at December 31, 2011, a reduction from $4.2 million, or 0.49%, at December 31, 2010.

For the year ended December 31, 2011, total net loan charge-offs were $27.2 million compared to $20.4 million in the year ended December 31, 2010. The net charge-offs in the current period were
concentrated in the construction and land development and non-owner occupied commercial real estate loan categories and were primarily associated with the master settlement with the Banks largest non-performing loan relationship. The ratio of
net loan charge-offs to average gross loans for the current year was 3.06% compared to 1.88% in the previous year. Average gross loans in the current period were 17.7% lower than the previous year.

Reductions in non-performing loans were due to the Company taking ownership of additional residential and commercial properties related
to loans which previously were on nonaccrual status, nonaccrual loan payoffs, charge-offs, and the return of loans to performing status.

The Companys allowance for credit losses continues to decline in concert with the reduction in adversely classified loans, loan delinquencies and other relevant credit metrics. With the reduction in
net charge-offs over the past several years and change in the loan portfolio composition, loss factors used in managements estimates to establish reserve levels have declined commensurately.

The provision for credit losses was $14.4 million for the twelve months ended December 31, 2011, compared to $10.1 million in the
same period last year. The trend of future provision for credit losses will depend primarily on economic conditions, level of adversely-classified assets, and changes in collateral values.

At December 31, 2011, total non-performing assets were down compared to December 31, 2010. Non-performing assets and
non-performing loans have also declined compared to December 31, 2010, in terms of percentage of total assets and loans, respectively. The amount of additions to non-performing assets has slowed during 2011 versus the prior year. This is due to
the positive impact of business improvement plans implemented by a number of borrowers in response to the current economic downturn.

The Company has remained focused on OREO property disposition activities. While sales were down compared to the prior year, current period sales were higher than the same period last year. The largest
balances in the OREO portfolio at December 31, 2011, were attributable to residential and commercial site development

projects, followed by income producing properties, all of which are located within the regions in which we operate. The total number of OREO property units has decreased during the year. This
reduction is a result of sales that occurred during the year and fewer properties transferred to OREO during the period.

LOANS AND
DEPOSITS

The Banks total loan portfolio declined from December 31, 2010, reflecting the continued
challenges in the local and national economy. Loan totals have also declined because the Company exited a number of higher risk rated loan relationships over the past year which contributed to the contraction in the commercial real estate loan
category over the same period.

Interest and fees earned on our loan portfolio are our primary source of revenue. Our ability
to achieve loan growth will be dependent on many factors, including the effects of competition, economic conditions in our markets, retention of key personnel and valued customers, and our ability to close loans in the pipeline.

The Company manages new commercial, including agricultural, loan origination volume using concentration limits that establish maximum
exposure levels by designated industry segment, real estate product types, geography, and single borrower limits. We expect the commercial loan portfolio to be an important contributor to growth in future revenues as we continue to seek to limit our
exposure to construction and development and commercial real estate.

Average total deposits declined 10.0% during 2011 as
compared to 2010. This decrease was mainly due to the decision to continue to reduce higher cost time deposit balances. Total average time deposits declined as a percentage of the Companys average total deposits in 2011 versus the prior year.
The combination of the Companys efforts to reduce higher-cost time deposits and recent deposit pricing strategies to lower interest rates in concert with market conditions has helped reduce the average rate paid on total deposits in 2011, down
significantly from 2010.

REVERSE STOCK SPLIT

On February 10, 2011, Bancorp implemented a 1-for-10 reverse split of its common stock (the Reverse Stock Split) pursuant to an amendment to its Restated Articles of Incorporation
approved by shareholders on December 16, 2010. All share and per share related amounts in this report have been restated to reflect the Reverse Stock Split.

As a result of the Reverse Stock Split, every ten shares of the Companys common stock issued and outstanding at the end of the effective date were combined and reclassified into one share of common
stock. Bancorp did not issue fractional shares of common stock and paid cash in lieu of fractional shares resulting from the Reverse Stock Split. Cash payments for fractional shares were determined on the basis of the stocks average closing
price on the NASDAQ Global Select Market for the five trading days immediately preceding the effective date, as adjusted for the Reverse Stock Split.

Also as a result of the Reverse Stock Split, the number of outstanding shares of common stock declined from 100,348,303 shares to 10,035,241 shares. The number of authorized shares of common stock was
previously established, and remained, at 150,000,000 following the reverse stock split. Proportional adjustments have also been made to the conversion or exercise rights under the Companys outstanding stock incentive plans, preferred stock,
restricted stock, stock options and warrants.

DISCUSSION AND ANALYSIS

The following discussion should be read in conjunction with PremierWests audited consolidated financial statements and the notes
thereto as of December 31, 2011 and 2010 and for each of the three years in the periods ended December 31, 2011, 2010, and 2009, that are included in this report.

PremierWest conducts a general commercial banking business, gathering deposits and applying
those funds to the origination of loans for commercial, real estate, and consumer purposes and investments.

PremierWests profitability depends primarily on net interest income, which is the difference between interest income generated by
interest-earning assets (principally loans and investments) and interest expense incurred on interest-bearing liabilities (principally customer deposits). Net interest income is affected by the difference (the interest rate spread)
between interest rates earned on interest-earning assets and interest rates paid on interest-bearing liabilities, and by the relative volume of interest-earning assets and interest-bearing liabilities. Another indicator of an institutions net
interest income is its net yield on interest-earning assets or net interest margin, which is net interest income divided by average interest-earning assets.

PremierWests profitability is also affected by such factors as the level of non-interest income and expenses and the provision for
loan loss expense. Non-interest income consists primarily of service charges on deposit accounts and fees generated through PremierWests mortgage division and investment services subsidiary. Non-interest expense consists primarily of salaries,
commissions and employee benefits, OREO and loan collection expenses, professional fees, equipment expenses, occupancy-related expenses, communications, advertising and other operating expenses.

FINANCIALHIGHLIGHTS

The following table provides the reconciliation of net loss applicable to common shareholder to pre-tax, pre-credit cost operating income (non-GAAP) for the periods presented:

For The Twelve Months Ended

(Dollars in Thousands)

December 31,2011

December 31,2010

Year overYear %Change

Net loss applicable to common shareholders

$

(17,616

)

$

(7,492

)

-135

%

Provision for loan losses

14,350

10,050

43

%

Net cost of operations of other real estate owned and foreclosed assets

8,554

6,851

25

%

Provision (benefit) for income taxes

70

134

-48

%

Preferred stock dividends and discount accretion

2,565

2,533

1

%

Pre-tax, pre-credit cost operating income

$

7,923

$

12,076

-34

%

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are
not audited. Management believes that presentation of this non-GAAP financial measure provides useful information frequently used by shareholders in the evaluation of a company. Non-GAAP financial measures have limitations as analytical tools and
should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

PremierWest recorded a net loss available to common shareholders of $17.6 million for the
year ended December 31, 2011, compared to a net loss of $7.5 million in 2010 and a net loss of $148.6 million in 2009. Our diluted loss per common share was $1.76, $0.90, and $60.07, for the years ended 2011, 2010 and 2009, respectively, after
adjusting for the 1-for-10 reverse stock split that occurred on February 10, 2011. Loss on average common equity available to common shareholders was -34.33%, -13.69%, and -93.07%, for the years ended December 31, 2011, 2010, and 2009,
respectively.

Years Ended December 31,

(Dollars in thousands)

2011

2010

2009

2008

2007

Net income (loss) available to common shareholders

$

(17,616

)

$

(7,492

)

$

(148,643

)

$

(7,814

)

$

14,827

Average assets

$

1,341,192

$

1,470,807

$

1,600,572

$

1,456,722

$

1,073,571

RETURN ON AVERAGE ASSETS

-1.31

%

-0.51

%

-9.29

%

-0.54

%

1.38

%

Net income (loss) available to common shareholders

$

(17,616

)

$

(7,492

)

$

(148,643

)

$

(7,814

)

$

14,827

Average common equity

$

51,317

$

54,725

$

159,717

$

177,254

$

113,654

RETURN ON AVERAGE EQUITY AVAILABLE TO COMMON SHAREHOLDERS

-34.33

%

-13.69

%

-93.07

%

-4.41

%

13.05

%

Cash dividends declared

$



$



$

236

$

4,032

$

2,891

Net income (loss)

$

(15,051

)

$

(4,959

)

$

(146,472

)

$

(7,539

)

$

15,102

PAYOUT RATIO

0.00

%

0.00

%

-0.16

%

-53.48

%

19.14

%

Average stockholders equity

$

91,464

$

94,486

$

194,475

$

186,032

$

123,244

Average assets

$

1,341,192

$

1,470,807

$

1,600,572

$

1,456,722

$

1,073,571

AVERAGE EQUITY TO ASSETS RATIO

6.82

%

6.42

%

12.15

%

12.77

%

11.48

%

During the second quarter of 2009, federal and state bank regulators initiated their annual regulatory
examination and completed the examination during the third quarter of 2009. As a result of the examination and capital levels, in 2010 the Bank became subject to a formal regulatory agreement with the FDIC. Our Board of Directors initiated a rights
offering, as discussed in Note 2Regulatory Agreement, Economic Condition and Management Plan. The agreement required our leverage capital ratio to reach 10.00% by October 3, 2010, a level above the published regulatory minimum
for well-capitalized. Our Board of Directors approved Managements recommendations that the following steps be taken to meet regulatory requirements for Bank capital:



Deferring further dividend payments on the preferred stock issued pursuant to the U.S. Treasurys Capital Purchase Program; and



Deferring further interest payments on the Companys trust preferred securities.

Due to these and other steps taken to comply with the regulatory agreement, the Banks capital ratios as of December 31, 2011,
are as follows:

December 31,2011

December 31,2010

RegulatoryMinimum to beAdequately Capitalized

RegulatoryMinimum to beWell-Capitalized

greater than or equal to

greater than or equal to

Total risk-based capital ratio

13.03

%

12.59

%

8.00

%

10.00

%

Tier 1 risk-based capital ratio

11.77

%

11.31

%

4.00

%

6.00

%

Leverage ratio

8.72

%

8.85

%

4.00

%

5.00

%

The FDIC has not taken action to date regarding the Companys status of non-compliance with the
capital ratio requirement.

In addition, the Regulatory Agreement required the Bank to reduce its levels of adversely
classified assets as of the 2009 regulatory examination to 100% of Tier 1 Capital plus the Allowance for Loan and Lease Losses

(ALLL) as of November 3, 2010 and 70% of Tier 1 Capital plus the ALLL as of April 2, 2011. The Company has kept regulatory authorities informed regarding its progress in complying with
this requirement. As of December 31, 2011 adversely classified assets to Tier 1 Capital plus ALLL was 68.0%.

The Oregon
Department of Consumer and Business Services, which supervises banks and bank holding companies through its Division of Finance and Corporate Securities, and the Federal Reserve have policies that encourage banks and bank holding companies to pay
dividends from current earnings, and have the general authority to limit the dividends paid by banks and bank holding companies, respectively. We do not expect to be in a position to pay dividends on our common or preferred stock or interest
payments on trust preferred securities without regulatory approval or until we are well-capitalized and have satisfied conditions in, and been released from, our regulatory agreements with the FDIC, DCBS and FRB.

The Company and Bank are currently subject to regulatory requirements to improve capital ratios, reduce non-performing asset totals,
restrict dividend payments, maintain an adequate allowance for loan losses, retain experienced management, limit deposit pricing and use of brokered deposits or other wholesale funding sources. Our inability to comply with any aspect of the
agreement could result in additional restrictions and penalties, impact our ability to obtain regulatory approval to effect branch transactions or other corporate activities, have an adverse impact on our ability to continue as a going concern and
prolong the time we are under regulatory constraints on growing our business.

Net Interest Income. The following table sets forth, for the periods indicated, information with regard to (1) average balances of assets and liabilities, (2) interest income on interest
earning assets and interest expense on interest bearing liabilities, (3) resulting yields and rates, (4) net interest income and (5) net interest spread. Nonaccrual loans have been included in the tables as loans carrying a zero
yield. Loan fees are recognized as income using the interest method over the life of the loan. The yields and costs include fees, premiums and discounts, which are considered adjustments to yield. The table reflects the effect of income taxes on
nontaxable loans and securities.

For the Years Ended

December 31, 2011

December 31, 2010

December 31, 2009

(Dollars in 000s)

AverageBalance

InterestIncome orExpense

AverageYieldsor
Rates

AverageBalance

InterestIncome orExpense

AverageYields orRates

AverageBalance

InterestIncome orExpense

AverageYields orRates

ASSETS:

Interest earning balances due from banks

$

69,896

$

187

0.27

%

$

88,514

$

269

0.30

%

$

39,223

$

308

0.79

%

Federal funds sold

3,172

7

0.22

%

23,148

45

0.19

%

66,966

175

0.26

%

Investmentstaxable

271,909

6,046

2.22

%

179,839

4,808

2.67

%

86,353

2,401

2.78

%

Investmentsnontaxable

2,502

143

5.72

%

5,349

328

6.13

%

3,647

232

6.36

%

Gross loans (1)

891,846

53,293

5.98

%

1,083,574

63,882

5.90

%

1,221,842

75,078

6.14

%

Mortgages held for sale

692

34

4.91

%

615

27

4.39

%

1,100

49

4.45

%

Total interest earning assets

1,240,017

59,710

4.82

%

1,381,039

69,359

5.02

%

1,419,131

78,243

5.51

%

Allowance for loan losses

(30,516

)

(44,966

)

(37,795

)

Other assets

131,691

134,734

219,236

Total assets

$

1,341,192

$

1,470,807

$

1,600,572

LIABILITIES AND STOCKHOLDERS EQUITY:

Interest-bearing deposits

440,257

908

0.21

%

487,182

2,372

0.49

%

480,760

4,245

0.88

%

Time deposits

487,905

8,020

1.64

%

590,701

9,599

1.63

%

629,742

13,896

2.21

%

Short-term borrowings

3,762

15

0.40

%

25

2

8.00

%

4,809

33

0.69

%

Long-term borrowings

30,928

615

1.99

%

30,928

1,101

3.56

%

30,928

1,794

5.80

%

Total interest bearing liabilities

962,852

9,558

0.99

%

1,108,836

13,074

1.18

%

1,146,239

19,968

1.74

%

Non-interest-bearing deposits

268,656

251,670

245,829

Other liabilities

18,220

15,815

22,472

Equity

91,464

94,486

186,032

Total liabilities and shareholders equity

$

1,341,192

$

1,470,807

$

1,600,572

Net interest income (3)

$

50,152

$

56,285

$

58,275

Net interest spread

3.83

%

3.84

%

3.77

%

Average yield on earning assets (2) (3)

4.82

%

5.02

%

5.51

%

Interest expense to earning assets

0.77

%

0.95

%

1.41

%

Net interest income to earning assets (2) (3)

4.04

%

4.08

%

4.11

%

Reconciliation of Non-GAAP measure:

Tax Equivalent Net Interest Income

Net interest income

$

49,917

$

55,967

$

57,996

Tax equivalent adjustment for municipal loan interest

178

187

186

Tax equivalent adjustment for municipal bond interest

57

131

93

Tax equivalent net interest income

$

50,152

$

56,285

$

58,275

Non-GAAP financial mesures have inherent limitations, are not required to be uniformly applied, and are not audited.

Management believes that presentation of this non-GAAP measure provides useful information frequently used by shareholders in the evaluation of a company.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation
or as a substitue for analyses of results as reported under GAAP.

(1)

Non-accrual loans of approximately $76.2 million at 12/31/11, $129.5 million at 12/31/2010, $98.5 million for 12/31/2009 are included in the average loan balances.

(2)

Loan interest income includes loan fee income of $324,000, $263,000, and $1.1 million for 12/31/2011, 12/31/2010, and 12/31/2009, respectively.

(3)

Tax-exempt income has been adjusted to a tax equivalent basis at a 40% effective rate. The amount of such adjustment was an additional to recorded pre-tax income of
$235,000, $318,000, and $279,000 for 2011, 2010, and 2009, respectively.

Rate/Volume Analysis

The following table provides an analysis of the net interest income on a tax equivalent basis indicating the impact of
changes in the volume of interest-earning assets and interest-bearing liabilities and of changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities. The values in this table reflect the extent to which changes
in interest income and changes in interest expense are attributable to changes in volume (changes in volume multiplied by the prior-year rate) and changes in rate (changes in rate multiplied by prior-year volume). Changes attributable to the
combined impact of volume and rate have been allocated to rate.

Net Loss Applicable to Common Shareholders. Net loss applicable to common shareholders for the twelve months ended December 31, 2011 was $17.6 million. This compares to a net loss applicable
to common shareholders of $7.5 million for the twelve months ended December 31, 2010, respectively. Loss per basic and diluted share for the twelve months ended December 31, 2011, was $1.76 as compared to a loss per basic and diluted share
of $0.90 for the twelve months ended December 31, 2010. For additional detail regarding calculation of our earnings per diluted share in the current quarter and year to date, see Note 19 Basic and Diluted Loss Per Common Share of
this report.

(All amounts in Thousands, except per share data)

STATEMENT OF OPERATIONS AND LOSS PER COMMON SHARE DATA

For the Twelve Months Ended

December 31,2011

December 31,2010

Change

% Change

Interest and dividend income

$

59,475

$

69,041

$

(9,566

)

-13.9

%

Interest expense

9,558

13,074

(3,516

)

-26.9

%

Net interest income

49,917

55,967

(6,050

)

-10.8

%

Loan loss provision

14,350

10,050

4,300

42.8

%

Non-interest income

10,838

11,238

(400

)

-3.6

%

Non-interest expense

61,386

61,980

(594

)

-1.0

%

Loss before provision for income taxes

(14,981

)

(4,825

)

(10,156

)

-210.5

%

Provision for income taxes

70

134

(64

)

-47.8

%

Net loss

$

(15,051

)

$

(4,959

)

$

(10,092

)

-203.5

%

Less preferred stock dividends and discount accretion

2,565

2,533

32

1.3

%

Net loss applicable to common shareholders

$

(17,616

)

$

(7,492

)

$

(10,124

)

-135.1

%

Basic loss per common share (1)

$

(1.76

)

$

(0.90

)

$

(0.86

)

-95.6

%

Diluted loss per common share (1)

$

(1.76

)

$

(0.90

)

$

(0.86

)

-95.6

%

Average common shares outstandingbasic (1)

10,035,241

8,318,042

1,717,199

20.6

%

Average common shares outstandingdiluted (1)

10,035,241

8,318,042

1,717,199

20.6

%

(1)

As of December 31, 2011 and December 31, 2010, 109,039 common shares related to the potential exercise of the warrant issued to the U.S. Treasury, pursuant to
theTroubled Asset Relief Program (TARP) Capital Purchase Program were not included in the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.

Management believes that presentation of this non-GAAP financial measure provides useful information frequently used by shareholders in the evaluation of
a company.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for
analyses of results as reported under GAAP.

Net interest income for twelve months ended December 31, 2011, was down as
compared to the prior year. This is primarily due to a decline in average interest earning assets during these periods as part of the companys deleveraging strategy. Correspondingly, average interest bearing liabilities decreased during these
same periods. Changes in the balance sheet mix also contributed to declines in net interest income during these periods. Loan balances have declined through payoffs and charge-offs. Investment securities have grown as a proportion of the balance
sheet with loan demand continuing to be weak due to the extended economic slowdown. As such, investment securities, which typically generate a lower yield than loans, comprise a higher percentage of earning assets.

Net interest margin for 2011 increased as compared to 2010, predominantly due to a lower cost of interest bearing deposits. The yield
earned on loans improved year-over-year primarily due to a reduction in the amount of interest reversed from placement of loans on non-accrual in 2011 as compared to 2010. As a result, the yield on loans for the twelve months ended December 31,
2011 declined by 4 basis points versus 13 basis points for the same period in 2010 due to interest reversed from placement of loans on non-accrual. The decline in the amount of interest reversed in 2011 is due to the significant reduction in the
dollar amount of loans placed on non-accrual during 2011 as compared to 2010.

Management currently estimates that the Bank
remains slightly asset sensitive over the next twelve month measurement period. As such, earning assets are forecast to mature or re-price more frequently than interest bearing liabilities over this period. Managements ability to maintain or
enhance the Banks net interest margin will depend in part on the ability to generate new loans, further reduce nonperforming assets and control the cost of funds. All of these actions will depend on economic conditions, competitive factors and
market interest rate trends. For more information see the discussion under the heading Quantitative and Qualitative Disclosures about Market Risk in this report.

Provision for Credit Losses. The provision for credit losses was $14.4 million for the twelve months ended December 31, 2011, compared to $10.1 million in the same period last year. While loan
net charge-offs in 2011 increased versus 2010, the overall risk profile of the Companys loan portfolio continues to improve. The level of adversely classified and non-performing loans has declined significantly during the past year. In
addition, the

percentage of loans past due 30  89 days and still accruing as of December 31, 2011 continued to be under 1.00%. The provision for credit losses will depend primarily on economic
conditions, real estate valuations, and the interest rate environment, as an increase in interest rates could put pressure on the ability of our borrowers to repay loans. For more information, see the discussion under the subheading Allowance
for Credit Losses and Net Loan Charge-offs below.

Non-interest Income. Non-interest income for the twelve months ended
December 31, 2011 was relatively unchanged as compared to the same period in 2010. Service charge income on deposit accounts declined due to a reduction in the amount of non-sufficient check items from the same period in 2010. Non-interest
income was also impacted by gains on sales of securities taken in order to reduce the proportion of lower yielding cash-equivalent investments and increase the proportion of relatively higher-yielding federal government guaranteed and municipal
securities. In addition, investment brokerage fee income grew from increased sales of investment products in a period of historically low deposit interest rates. This was offset by declines in the one-time gain on death-benefit from bank-owned life
insurance and in deposit account service charge income as compared to the previous period.

In November 2010 the Federal
Deposit Insurance Corporation (FDIC) issued mandates on overdraft payment programs applicable to its supervised institutions, including the Bank. These restrictions were effective July 1, 2011. The Bank began implementing changes to
its overdraft payment program in the second quarter of 2011 to comply with the FDICs mandates. The Company believes these mandates, together with a change in consumer spending habits, have adversely affected non-interest income.

The following table illustrates the components and change in noninterest income for the periods shown:

For The Twelve Months Ended

(Dollars in Thousands)

December 31,2011

December 31,2010

$ Change

% Change

Non-interest income

Service charges on deposit accounts

$

3,720

$

4,175

$

(455

)

-10.9

%

Other commissions and fees

2,724

2,802

(78

)

-2.8

%

Net gain on sale of securities, available for sale

1,115

732

383

52.3

%

Investment brokerage and annuity fees

1,754

1,554

200

12.9

%

Mortgage banking fees

413

385

28

7.3

%

Other non-interest income:

Other income

429

574

(145

)

-25.3

%

Increase in value of BOLI

508

542

(34

)

-6.3

%

Other non-interest income

175

474

(299

)

-63.1

%

Total non-interest income

$

10,838

$

11,238

$

(400

)

-3.6

%

Non-interest Expense. Non-interest expense for the twelve months ended December 31, 2011 declined compared to
the same period in 2010. Salaries and employee benefits expense decreased due to a reduction in loan workout personnel to reflect the decline in problem assets. Personnel reductions were also affected in loan production staff in response to soft
loan demand due to the current economic downturn. Reductions in branch personnel were also made to correspond to the continued growth in use of non-branch channels by customers to access banking services. In addition, the Companys FDIC
insurance premium expense declined in 2011 as compared to 2010 as a result of a change in assessment methodology beginning in 2011 and declines in asset levels average as part of the planned deleveraging of the Bank. This decrease was partially
offset by larger dollar amounts of OREO write downs to current market value and expenses incurred to sell and maintain these properties. We expect our non-interest expense will continue to be affected by expenses associated with elevated levels of
non-performing assets.

The following table illustrates the components and changes in noninterest expense for the
periods shown:

For The Twelve Months Ended

(Dollars in Thousands)

December 31,2011

December 31,2010

$ Change

% Change

Non-interest expense

Salaries and employee benefits

$

26,836

$

28,420

$

(1,584

)

-5.6

%

Net cost of OREO and foreclosed assets

8,554

6,851

1,703

24.9

%

Net occupancy and equipment

7,953

7,794

159

2.0

%

FDIC and state assessments

3,448

4,670

(1,222

)

-26.2

%

Professional fees

3,053

2,839

214

7.5

%

Communications

1,953

1,973

(20

)

-1.0

%

Advertising

828

801

27

3.4

%

Third-party loan costs

1,266

1,366

(100

)

-7.3

%

Professional liability insurance

813

721

92

12.8

%

Problem loan expense

652

380

272

71.6

%

Other non-interest expense:

Director fees

405

402

3

0.7

%

Internet costs

624

396

228

57.6

%

ATM debit card costs

692

595

97

16.3

%

Business development

340

421

(81

)

-19.2

%

Amortization

499

958

(459

)

-47.9

%

Supplies

569

608

(39

)

-6.4

%

Other non-interest expense

2,901

2,785

116

4.2

%

Total non-interest expense

$

61,386

$

61,980

$

(594

)

-1.0

%

Changing business conditions, increased costs related to employee turnover, lower loan production volumes
causing deferred loan origination costs to decline, or a failure to manage operating and control environments could adversely affect our ability to limit expense growth in the future.

Income Taxes. The Company recorded an income tax provision for the twelve months ended December 31, 2011 and 2010. The provision was made for minimum state income taxes owed.

As of December 31, 2011, the Company maintained a valuation allowance of $37.6 million against its deferred tax asset balance of
$37.6 million, for no net deferred tax asset. If the company returns to sustained profitability, all or a portion of the deferred tax asset valuation allowance would be reversed. A reversal of the deferred tax asset valuation allowance would
decrease the Companys income tax expense and increase net income.

Balance Sheet Overview

Balance sheet highlights as of December 31, 2011 are as follows:



Total assets were $1.27 billion, down 10.3% from December 31, 2010 primarily as a result of deleveraging activities;



Total net loans of $774.7 million, declined by 17.7% from the balance at December 31, 2010;



Total investment securities of $319.4 million increased 46.3% from December 31, 2010; and



Total deposits of $1.13 billion at December 31, 2011, were down 10.9% from year end 2010, due to a continued shift away from time deposits and
success in migrating to noninterest-bearing deposits as sources of funding.

Book value is calculated as the total common equity (less preferred stock and the discount on preferred stock) divided by the period ending number of common shares
outstanding.

(2)

Tangible book value is calculated as the total common equity (less preferred stock and the discount on preferred stock) less core deposit intangibles divided by the
period ending number of common shares outstanding.

Tax-exempt income has been adjusted to a tax equivalent basis at a 40% rate.

(2)

Non-interest expense divided by net interest income plus non-interest income

Cash and Cash Equivalents

As of December 31, 2011, total cash and
cash equivalents decreased from December 31, 2010, as we utilized our cash and cash equivalents more effectively by redeploying these assets into higher-yielding investment securities.